EU opens probe over Slovak aid for JLR car plant

EU opens probe over Slovak aid for JLR car plant
The plant, forecast to produce 150,000 cars per year, should start production next year.
By bne IntelliNews May 24, 2017

The European Commission has launched a probe into investment incentives of up to €125mn handed to Jaguar Land Rover by Slovakia to convince the premium carmaker to park a €1.4bn plant in the country.

The probe is likely to infuriate Bratislava. Prime Minister Robert Fico reportedly pulled out all the stops in a personally-led effort to beat off competition from across the Visegrad region to land the investment from the Indian-owned iconic British marque. JLR led the region a merry dance, clearly fishing for the best deal. The likes of Daimler have copied the model since.

Slovakia is the world’s largest auto producer per capita. Bratislava said that it hopes that the JLR plant, which will start producing cars in Nitra in 2018, will help boost GDP. Numerous parts suppliers have piled into the area in the wake of the announced investment.

However, Margrethe Vestager, EU competition commissioner, said the investment in Nitra must be checked to see if it is in line with EU rules on regional state aid.

“It is a good thing if public investment fosters economic growth in member states,” she is quoted as saying in a statement. “However, we need to avoid harmful subsidy races. The commission will carefully investigate if Slovakia's planned support is really necessary for Jaguar Land Rover to locate its investment in Nitra and is kept to the minimum needed, if it distorts competition or harms cohesion in the EU."

Slovakia promised €125mn to support to build the plant forecast to produce 150,000 cars per year, which is the maximum state aid a country can provide under the EU rules. The commission has “doubts at this stage that the planned aid complies with all state aid rules.

“In particular, the commission has doubts at this stage whether the measure incentivises private investment,” the statement continued. “It will need to further investigate whether Jaguar Land Rover's investment decision was triggered by considerations other than the conditional public subsidy.”

The region of Nitra is an area eligible for regional aid under EU state aid rules, the EU statement noted. However, perhaps crucially, EU rules state that support must not be used to compete with another region that qualifies for development aid.

Slovakia competed for the investment with its Visegrad peers for months. The Czech Republic, Hungary and Poland, which also host thriving auto sectors that are central to their economies, all had claimed at various points throughout 2015 that they were close to striking the deal.

However, JLR announced in August that year that it had signed a letter of intent with Bratislava. Slovakia amended legislation on state aid for large investors, making it possible to speed up processes such as construction permitting, as part of its successful bid to win the project.

Poland reportedly offered "huge" incentives to owner Tata Motors to attract the planned factory. After losing out, Warsaw complained that Bratislava had offered incentives with which it could not compete. Poland has since persuaded Daimler to take up the site in Jawor, in the southwest of the country, that it had offered JLR, for a €500mn engine plant.

The commission notes that Slovakia claims it was competing against Mexico for the JLR plant. The EU executive says it will investigate “indications” that Bratislava was competing with other member states.

“If proven, the measure may have an anti-cohesion effect in the EU, which would not be permitted,” the statement sums up.

On top of that, the commission says it will look at the land offered to JLR to build the factory, and other real estate issues that have been wiaved by Bratislava. Should those elements be designated as state aid, the statement points out, the total package would rise to above the €125mn allowed. Any incentives deemed illegal state-aid would need to be repaid by JLR.