2000/389/EC: Commission Decision of 22 December 1999 on aid scheme C 39/99 (ex E 2/97) United Kingdom, English Partnerships (EP) under the partnerships investment programme (PIP), hereinafter, 'EP/PIP' scheme (notified under document number C(1999) 5208) (Text with EEA relevance) (Only the English text is authentic)
Date: 1999-12-22
Institutions: European Commission
Subjects: United Kingdom, aid system, development aid, less-favoured region, regional aid, town and country planning

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 December 1999

on aid scheme C 39/99 (ex E 2/97) United Kingdom, English Partnerships (EP) under the partner-

ships investment programme (PIP), hereinafter,

‘EP/PIP’ scheme

(notified under document number C(1999) 5208)

(Only the English text is authentic)

(Text with EEA relevance)

(2000/389/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

called

Having
their
comments (1), pursuant to the provision cited above and having
regard to their comments,

interested

submit

parties

on

to

Whereas:

I. PROCEDURE

(1)

By letter of 9 January 1995 the United Kingdom notified
to the Commission, in accordance with Article 88(3) of
the EC Treaty,
the programme of assistance offered
under the Single regeneration budget (SRB) (N 31/95).
This notification covered a number of
schemes,
including English partnerships (EP) under the partner-
ships investment programme (PIP) (the EP/PIP scheme), a
regional development scheme, relating to the public
financing of regeneration projects in England.

(2)

By letter to the United Kingdom of 4 May 1995 (SG(95)
D/5602), the Commission approved the SRB on the
basis of Article 87(3)(c) of the EC Treaty concerning aid

(1) OJ C 245, 28.8.1999, p. 9.

(3)

(4)

(5)

(6)

for the development of certain economic areas. In its
decision the Commission stated that a number of meas-
ures included in the SRB were not caught by Article
87(1) of the EC Treaty.
‘Urban regeneration (EP activi-
ties)’ was mentioned as one of those measures.

The UK authorities have operated the scheme on the
basis of
the perception that no EP programme
concerning funding of regeneration projects involves
State aid within the meaning of Article 87(1).

Following the approval of the SRB, the Commission's
attention was drawn to certain cases where the benefi-
ciaries of EP assistance were also enterprises competing
in intra-Community trade.

In a meeting of January 1996 the Commission asked the
UK authorities to provide clarification on the actual
functioning of the scheme.

Different aspects of the issue have been further discussed
and analysed in meetings and correspondence between
January 1996 and February 1998. The Commission first
announced its intention to propose appropriate meas-
ures on the basis of Article 88(1) of the EC Treaty at a
meeting with the UK authorities in September 1997. A
visit to the EP headquarters in London took place in
research and discussions
October 1997 for
concerning a sample of cases,
in order to determine
more precisely the appropriate measures to be proposed.

further

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(7)

(8)

(9)

Finally, by letter of July 1998 (SG(98) D/06108) the
Commission proposed to the UK authorities, on the
basis of Article 88(1) of
the EC Treaty, appropriate
measures concerning one of EP investment programmes,
namely the EP/PIP scheme.

The UK authorities were requested to give their consent
to the measures proposed within 20 working days. In
April 1999 the UK authorities sent their formal response
to the appropriate measures proposed. In that response
the authorities did not give their full consent to the
measures proposed by the Commission.

in May 1999 the Commission
As a consequence,
decided to initiate the procedure under Article 88(2) of
the EC Treaty in relation to the EP/PIP scheme. The
official response of the UK authorities was sent by letter
of 29 July 1999. Notice of the Commission's decision
was published in the Official
Journal on 28 August
1999 (2). Eleven interested parties submitted comments
within the prescribed period of one month following
that publication. The Commission also
received
comments from many other interested parties after the
prescribed period.

II. DESCRIPTION OF THE EP/PIP SCHEME

Status/history of EP

(10)

EP was established on 10 November 1993 under powers
provided by Part III of the Leasehold Reform, Housing
and Urban Development Act 1993.
It became fully
operational on 1 April 1994.

EP (referred to in the statute as the ‘Urban Regeneration
Agency’) is a permanent, non-departmental public body
responsible to the Secretary of State for the Environ-
ment. Funding towards EP forms an allocation within
the SRB. Its resources comprise grant in aid from the
Department of Environment as well as the receipts it
generates from its activities, including the sale of assets
(primarily the property portfolio it
took over from
English Estates an agency which it succeeded).

aiming to tackle the problems of an area in the round.
Its programme will address the need for land for a
variety of purposes,
industrial and
commercial premises, the attraction of inward invest-
ment,
leisure, recreation and environ-
mental

infrastructure,
improvements.’

including housing,

Areas covered by EP's funding

(12)

EP identifies its own priority areas by drawing up
regional strategy documents each year based on an
assessment of
relevant data and consultation with
regional partners. Among other indicators that analysis
takes into consideration are prevailing unemployment
rates, the outcomes of the most recent national Derelict
Land Survey and so forth.

The areas in question are the following:

(a) European Objective 1 and 2 areas;

(b) coalfield closure areas (an important target of EP's
activities, not necessarily situated in assisted areas.
Owing to the small size and often the geographical
isolation of these areas with respect to the travel-to-
work-areas
the UK
regional aid map in force up to 31 December 1999),
it has been alleged by the UK authorities that it was
difficult to incorporate them in the map);

(the building-block unit of

(c) City challenge and other inner city areas;

(d) rural areas of severe economic need, chiefly Euro-

pean Objective 5b areas;

(e) other assisted areas.

As mentioned in the notification of 9 January 1995, ‘the
above list is not in order of priority and EP has the
flexibility to respond to urgent needs outside these areas
and to structural shifts in local economy’ and therefore,
in principle EP is able to fund activities anywhere in
England.

Overall objective of EP (3)

Means of action under
particular

the EP/PIP scheme in

(11)

‘The overall aim of the agency is to secure the regenera-
tion of areas of need through the reclamation, develop-
ment or redevelopment of land and buildings. Whilst
concentrating on the regeneration of land it will, wher-
ever possible, operate within a broader regeneration
framework working with local and regional partners,

(13)

EP acts under different investment programmes. The
above information concerning the objective of EP and
the geographic
concerned apply to all EP
programmes in general.

areas

(2) See footnote 1.
(3) Annual Report referring to the year ending 31 May 1997 (Foreward

to the financial statements).

(14) However, the present Decision is concerned only with
the PIP whereby EP acts in partnership with developers
mainly from the private sector.

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(15)

Funding under EP/PIP is addressed to developers with a
strong economic link to the land to be developed,
notably property. The UK authorities have stressed that
the land ideally addressed by the scheme, is in private
hands. That is the main reason why no public tender
procedure can be organised for the allocation of the
public funding for development. The economic link
between the developer and the land is therefore the basis
for the way the EP/PIP scheme functions: applicants
present their own regeneration proposal to EP and nego-
tiate with EP the sharing of risks, costs and rewards.
That negotiation must result in practice in an agreement
on the amount of financing of the development costs,
the ‘gap funding’ (see recital 19).

(16)

In practice the assistance may take different
forms,
including in particular professional and technical advice,
rent guarantees to developers, grants and other forms of
joint ventures
partnership investment with developers,
with developers,
loans and loan guarantees to devel-
opers.

costs and that there will always be a necessity for gap
funding.

Reasonable margin of profit
developer

(profit allowance)

for

the

(20) A ‘reasonable’ margin of profit for the developer is built
into the estimated development costs and, therefore, it is
financed by EP, as part of the gap funding. The estimate
of ‘reasonable’ profit is appraised by EP on the basis of
the level of project risk and any feasible market compar-
isons. Specifically, the allowed profit is the minimum the
developer would accept in order to go ahead with the
project. The figure is reached after negotiation between
EP and the developer and reflects a professional judge-
ment by EP's internal valuers about the market profit
rates for similar types of projects in similar locations.

Method and level of assistance under the EP/PIP

Claw-back

(17) According to the UK authorities,

it is mainly the PIP
model of development which allows EP to obtain real
value for money. Candidate projects are strictly vetted
(from the point of view of additionality, practicality,
probity and private sector leverage) in order to ensure
that EP's objectives will be achieved with the minimum
public costs.

(18)

the underused or derelict

The UK authorities have emphasised their firm commit-
ment to maintaining such a partnership approach with
the private sector. The PIP model is necessary owing to
the alleged particularity of the English property market,
where much of
land is
privately owned. The application of the direct invest-
ment Programme, which is the existing alternative to the
PIP, would involve EP purchasing private land in every
case and taking on the full role of developer. The UK
authorities are committed to reducing recourse to the
direct investment programme since it involves, they say,
a significant increase in the level of public expenditure.

The main features of the EP/PIP scheme

Gap funding

(19)

EP's funding is aimed strictly at covering the gap
between estimated development costs and estimated
final value of the site. This position is based on the
assumption that, owing to the nature of projects under-
taken, the estimated final value of the completed site is
by definition lower than the estimated development

(21) A claw-back clause is set to recover excess profit (usually
at least 50 % of the excess amount), whereas losses
(costs overruns) are to be entirely borne by the devel-
oper. In this way, most risk is carried by the developer,
including any subsequent failure to achieve estimated
final value.

Appraisal of costs and values

(22) All costs and values are appraised to ensure that they
reflect prevailing market conditions. Again EP applies its
own market analysis. The UK authorities consider that
EP's comments on the structure of the English property
market are not out of line with analyses produced by
independent chartered surveyors or
the professional
bodies representing valuers and surveyors of property in
England.

According to the UK authorities the system guarantees
that end users receive no State aid because they pay
purchase and rent prices at market rates. In order to
determine the gap funding these prices are naturally
included in the final value and for this purpose they are
estimated by EP's internal valuers.

It should also be stressed that in the way the EP/PIP
scheme functions, the combination of interests between
the different actors involved (land owners, developers,
end users) should be considered the rule, in view of EP's
declared preference to assist ‘a developer with a perma-
nent interest in the site as initial owner or end-user’. This
particular
the Commission a
problem of transparency as regards the identification of
the real beneficiay of EP's assistance as well as the quan-
tification of the amount of aid it actually receives.

condition raises

for

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III. APPROPRIATE MEASURES PROPOSED BY THE
COMMISSION PURSUANT TO ARTICLE 88(1) OF THE
EC TREATY

(23)

For the sake of completeness a brief reference will be
made to the measures proposed by the Commission in
July 1998 pursuant to Article 88(1) EC procedure in
order to help the UK authorities to bring the scheme in
line with the rules on State aid.

Working concepts

(24)

In the spirit of collaboration between the national
authorities and the Commission in the context of the
procedure pursuant to Article 88(1) of the EC Treaty
and having studied the way the scheme is operated, the
Commission identified two working concepts in order
mainly to identify the circumstances under which aid
within the meaning of Article 87(1) of the EC Treaty
may be granted under the EP/PIP:

(a) bespoke development: in cases where the develop-
ment was designed to suit the needs of an end user
known at the moment the development works were
undertaken;

(b) speculative development: where the site was to be
developed in order to be open to different uses not
established at the time when the decision to develop
was taken.

(25)

The reason which prompted the Commission to propose
those concepts is that the current way of applying the
scheme does not make it possible always to identify with
certainty the actual beneficiary of the aid. The Commis-
sion has assumed the end user to be the aid beneficiary
of bespoke development and the land owner/developer
to be the aid beneficiary of speculative development,
given the strong economic link between developer and
land.

(26)

The UK authorities have not contested those working
concepts and assumptions, which formed the basis of all
further discussions.

abnormals’ citing the environmental and infrastructure
problems which make the specific site unmarketable.
The funding required in order to repair ‘site abnormals’
cannot be considered State aid, according to the UK
authorities, because it is limited to the amount necessary
in order to bring the site up to a marketable level.

(28)

The Commission proposed a number of appropriate
measures.

(29)

(30)

(31)

(32)

(33)

The UK authorities were asked to operate the EP/PIP
scheme as a regional aid scheme in conformity with the
relevant State aid rules, notably,
the Guidelines on
national regional aid (4) and the UK map of assisted
areas. Thus,
it was suggested that the EP/PIP scheme
would allow the UK authorities to grant regional State
aid, corresponding to the amount of gap funding. In the
case of bespoke development it was suggested that the
aid be granted to the.end user directly whereas in the
case of speculative development it was suggested that
the aid be granted to the developer/land owner.

The Commission suggested that all valuations including
costs, estimate final values, the sales/rent prices to end
users estimated as part of the gap funding, and the
calculation of potential claw-back be carried out by
independent chartered surveyors.

The scheme confers no State aid, within the meaning of
Article 87(1) of
the EC Treaty, according to the
Commission,
in case the investor (landowner or end
user) carries out on the site activities which are not
relevant for intra-Community trade.

The Commission suggests that cases where the land-
owner, the developer or the end user are companies
active in sectors subject to special Community State aid
rules will necessitate an individual notification.

The possibilities offered by the Community framework
on State aid for environmental protection could be
exploited the Commission suggested, notably in order to
bring under the State aid rules the public financing of
correcting ‘site abnormals’.

(34)

In their response to the appropriate measures, the UK
authorities accepted that their own restricted definition
to the
of bespoke development
regional aid rules.

should be subject

The ‘site abnormals’ concept

(27)

In the advanced stages of discussions, the UK authorities
put special emphasis on the fact that the EP/PIP scheme
addresses principally sites with serious environmental
damage incurred by polluters who are not known. The
‘site
UK authorities provide a generic definition of

(35) As regards speculative development, the UK authorities
maintained that no State aid is involved in EP funding
since the product in question (derelict land in England) is
not traded between Member States.

(4) OJ C 74, 10.3.1998, p. 4.

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(36) At that stage the Commission considered that the argu-
ments put forward by the UK authorities did not allay its
doubts as to the existence of State aid in the EP/PIP
scheme and as to its compatibility with the common
market. The Commission therefore decided to initiate
the procedure under Article 88(2) of the EC Treaty.

IV. COMMENTS FROM THE UK AUTHORITIES

(37)

the UK authorities
By their letter of 29 July 1999,
responded to the Commission's letter opening the proce-
dure under Article 88(2) of the EC Treaty. In that letter,
the UK authorities modify certain points of the position
expressed in their letter responding to the proposal of
appropriate measures.

The overall position of the UK authorities can now be
summarised as follows.

Bespoke development

(38)

The UK authorities agree to operate such developments
in conformity with the guidelines issued by the Commis-
sion and within the current and future maps of assisted
areas. The authorities include in the concept of bespoke
development all
industrial and most office uses. The
beneficiary of aid in respect of bespoke projects will be
the end user on the site.

Where the end user in a bespoke project is a company
active in sectors subject to special Community State aid
rules, an individual notification will be made to the
Commission.

Forms of aid other than grants under the EP/PIP scheme
will be explained in order to allow the Commission to
measure the aid element in them.

Special rules on State aid to enterprises in difficulty, to
SMEs,
for environmental protection, and to sensitive
sectors will be respected. The sectors of transport, agri-
culture and fisheries are not concerned by the scheme.

(39)

The UK authorities have also proposed to change the
valuation process, currently carried out internally by one
of EP's professional valuers. They propose that in future
each valuation undertaken by EP will be recorded and
signed off in the same way as an independent valuation,
in accordance with standard industry procedures (as laid
down by the professional body, the Royal Institute of
Chartered Surveyors) making the professional surveyors

(40)

(41)

(42)

(43)

personally and professionally responsible for the way
they have conducted their valuation. For schemes where
it is estimated that the value of the completed develop-
ment will be above GBP 5 million, a second indepen-
dent valuation will be required.

In addition it will be a requirement in the future that the
developer (not just for bespoke classification projects)
must award all ‘works’ contracts by competitive tender.
If the price in the best-value-for-money tender is lower
than the costs included in the project appraisal calcula-
tion, EP will substitute the tender price, recalculate the
funding requirement and amend the development agree-
ment accordingly.

Speculative development

Justice of

the Court of

The authorities maintain their position that no State aid
is involved. The Commission is obliged according to the
judgment of
the European
Communities, Joined Cases 296 and 318/82 Netherlands
and Leeuwarder Papierwarenfabriek v Commission (5), to set
out the circumstances in which intra-Community trade
is affected in the case of financing of speculative devel-
opment projects. In order to do that, the Commission
must, according to the UK authorities, examine the rele-
vant market, the place of the production in question on
that market, and the pattern of trade between Member
States in the product in question. In the present case, the
authorities are of the view that the Commission will be
unable to reach the standard imposed upon it by the
intra-
Justice, because of
Court of
Community property development market.

the negligible

Potential
guidelines

application

of

environmental

aid

The UK authorities stated their wish to explore whether
some aspects of the EP/PIP programme fall under the
Community Guidelines on State aid for environmental
protection (6) with the purpose of covering financing of
‘site abnormals’ in both bespoke and speculative devel-
opments.

V. COMMENTS FROM INTERESTED PARTIES

The following interested parties submitted comments
before the deadline of 28 September 1999: English Part-
nerships, North West Development Agency, Durham
County Council, Newcastle City Council, Derwentside
District Council, City of Sunderland, One NorthEast,
Local Government Association, Advantage West
Midlands, Association of North East Councils, East of
England Development Agency. Many other parties
submitted comments after that deadline. It is noted at
the outset that all those who submitted comments are
interested public authorities and local or regional devel-
opment agencies and that their comments largely coin-
cide with the comments of the UK Government.

(5) [1985] ECR 809.
(6) OJ C 72, 10.3.1994, p. 3.

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T h e m a i n c o m m e n t s r e c e i v e d a r e s u m m a r i s e d
a s f o l l o w s

tion on the existence of State aid pursuant
Article:

to that

(44)

(45)

The EP/PIP scheme has been a very successful regenera-
tion programme. It has proved very efficient, compared
with the Direct Investment Programme, and has deliv-
ered value for money. Without the partnership with the
private sector, and EP's agreement to provide the agreed
gap funding, many projects would not have taken place.
The regional aid rules are not suitable for regeneration
purposes, since they would subject EP financing to the
regional aid intensity ceilings and to the assisted regions,
and therefore would limit substantially the relating
amounts and the areas of action. The parties fear that
certain brownfield areas which can now be developed
through EP financing may not be included in the
regional aid map due to the rules in force concerning
the methodology for drafting the regional aid map.

The gap-funding mechanism is meant
to correct a
market failure and bring non-marketable assets up to a
marketable level. It is not conceived as an aid to indi-
vidual enterprises but is concerned with ‘project assis-
tance’. Furthermore, the amount of gap funding repre-
sents the minimum necessary in order to have the
project carried out. In order to calculate the gap funding,
EP appraises the project as a whole and its future
marketability and ensures that the applicant is left with
the ‘normal profit he would expect to get elsewhere’.

(46)

The EP/PIP scheme does not restrict competition but
enhances it. It is a funding programme open to all types
of applicants.

(50)

(47) One interested party emphasised that the Commission's
proposed measures are not clear on the types of benefi-
ciaries (developers, investors, landowners, end users) and
on the classes of land to be developed. The application
of those proposals, as they stand, would be problematic
for ‘mixed-use’ projects including infrastructure, specula-
tive and bespoke development.

(48) Most interested parties ask for the granting of a trans-
itional period for projects now in phase of assessment
and realisation.

VI. ASSESSMENT OF THE AID

Existence of aid

(a) the fact that the partnership between the public and
private sectors is cost-efficient, in the sense that the
operation of the programme in that form reduces
the burden on the public purse in comparison with
the Direct
is noted
investment programme.
furthermore, that in the way the scheme is operated
there are theoretically no real
limits as to the
amount of the funding which may be granted in
each individual case, or, in other words, as to the
gap funding in relation to the investment costs;

It

(b) the fact

that

the funding is granted in order to
correct a market failure: addressing a market failure
through public funding to individual enterprises
does not preclude the possibility that enterprises
competing in intra-Community trade may receive
aid within the meaning of Article 87(1) of the EC
Treaty;

(c) the funding is the minimum necessary for

the
project to proceed. This allegation does not take
account of the fact that under certain circumstances
(for instance, large enterprises in non-assisted areas)
no State aid within the meaning of Article 87(1) of
the EC Treaty is possible.

Therefore, the Commission must still examine, taking
into consideration the arguments submitted by the UK
Government and the interested parties in the course of
the procedure, whether the conditions for the applica-
tion of Article 87(1) of the EC Treaty are fulfilled. The
following analysis applies to both categories of bespoke
and speculative development unless otherwise specified.

(51)

‘Aid’: the funding offered by EP provides a quantifiable
financial incentive to a developer in order to enable him
to carry out development works on a site which,
according to EP's words, has ‘a problem in its condition
or location which does not encourage private investors’.
This is emphasised at several points in the papers
submitted by the UK authorities:

— investors are given incentives to choose EP's priority

sites,

— little would have been invested in these areas

without the Agency's involvement,

— EP's assistance serves to liberate the private investor

from an unmarketable asset.

(49)

It must be stated at the outset that the following circum-
stances, invoked by the UK Government or by the inter-
ested parties or both, do not automatically exclude the
existence of State aid within the meaning of Article
87(1) of the EC Treaty and thus do not preclude reflec-

(52)

The amount which corresponds to the gap funding is
initially proposed by the developer himself and finally
determined following EP's internal vetting procedure.
This amount is eventually considered to address the
developer's funding needs (covering part of the project

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costs and including a ‘reasonable’ profit for the devel-
oper) in order to undertake the proposed project. The
Commission therefore considers that the whole amount
aimed at gap funding constitutes the incentive necessary
for the project to proceed,

i.e. the aid in question.

(58)

The aid distorts competition ‘in so far as it affects trade
between Member States’. According to the Court of
Justice, whether or not State aid affects trade between
Member States does not depend on the purposes for
which the aid is granted, but on the effects it has (8).

(53) As regards end users, the assurance given by the authori-
ties that end users pay market prices may exclude the
possibility of aid only if such prices are determined by
objective valuers and according to objective criteria.

(59)

The analysis of the Commission proceeds along the lines
of the European Court of Justice judgment in Case 248/
84 Germany v Commission (9) which concerns an aid
scheme, like the EP/PIP scheme and not an individual
case,

in which the Court stated:

(54)

(55)

(56)

‘Aid granted by a Member State or through State resour-
ces’: EP is a public body, funded by the Department for
the Environment and pursuing public interest and public
policy objectives. The fact that certain principles defined
as being market-oriented, such as seeking best value for
money, are integrated into EP's operating philosophy has
no effect on its public status. The public status of EP
implies that it may be prone to finance a development
proposal which is risky, non-lucrative, or non attractive
to private investors, on the basis of the fact that the
project meets public interest/policy objectives. Private
financing institutions operating under normal market
conditions are not expected to incorporate public
interest or public policy objectives into the rationale of
their decisions.

(60)

‘In any form whatsoever’: EP's funding is channelled
through ‘a broad range of mechanisms’ including mainly
joint ventures with
grants, but also rent guarantees,
developers which may take the form of an equity stake
in a limited company,
loans and loan guarantees to
developers. The Commission considers that whatever the
form of this aid, it is within the scope of Article 87(1) of
the EC Treaty.

aid favours

certain undertakings’;

selectivity
‘The
criterion: EP grants its assistance selectively to certain
developers following examination of a large number of
projects submitted. The developer is currently the direct
recipient of its assistance and is perfectly identifiable
since the proposal
for the development comes from
him. The selectivity criterion is also satisfied by the fact
that EP's assistance is preferably granted to developers
who own the land in question in certain priority areas.

‘In the case of an aid programme the Commission may
confine itself to examining the characteristics of the
programme in question in order
to determine
whether, by reasons of the high amounts or percent-
ages of aid, the nature of investments for which aid
is granted or other terms of the programme, it gives
an appreciable advantage to recipients in relation to
their competitors and is likely to benefit undertak-
ings engaged in trade between Member States.’

active

companies

The EP/PIP scheme is an aid programme meant
to
address land regeneration and development and is open
to all sectors with the exception of companies operating
in the
sectors.
transport, agriculture and fisheries
Furthermore, in the case of bespoke development, there
have in practice been cases where the recipients of EP
funding were
in trade between
Member States. The scheme also finances speculative
development undertaken by any company without
sectoral restrictions except those mentioned above for
bespoke development. The Commission believes that
those affected by EP's discretionary funding are compa-
nies which conceive and carry out property develop-
ments, an activity which can be very mobile across
Member States, and not just companies active in the
trade in derelict land in England. Having regard to the
general characteristics of the programme the Commis-
sion can see grounds for the possibility of the scheme
engaged in trade between
benefiting undertakings
Member States both in cases of bespoke and speculative
development.

(57)

In these circumstances the Commission considers that
the EP/PIP scheme is liable to place certain undertakings
in a more favourable situation than others and thus to
fall within the scope of Article 87(1) of the EC Treaty (7).

(61)

It follows from the foregoing that all the conditions for
the application of Article 87(1) EC, concerning the exis-
tence of State aid within the meaning of that Article, are
met for both bespoke and speculative development.

(7) Case C-241/94 France v Commission [1996] ECR I-4551, paragraphs

22, 23 and 24.

(8) Case 173173 Italy v Commission [1974] ECR 709, paragraph 13.
(9) [1987] ECR 4013.

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to special Community State aid rules,

(62) As regards the aid beneficiary, with the exception of
cases where one of the parties is active in a sector
subject
the
Commission considers that, at least in the case of the
regional aid rules,
it may not be essential to identify
which of the parties, end user or land owner/developer,
is the aid beneficiary. In either case, the regional aid
rules will have to be respected. In those circumstances
and for the purposes of applying this scheme,
the
Commission considers that the aid beneficiary may be
presumed to be the end user in the case of bespoke
development
(a proposition with which the United
Kingdom agrees) and the land owner/developer in the
case of speculative development. In doubtful cases where
the aid beneficiary has further
the determination of
consequences under the State aid rules, individual noti-
fication may be made. Where one of the parties is active
in a sector subject to special Community State aid rules,
the Commission requires separate notification under
Article 88(3) of the EC Treaty and reserves its analysis as
to the identity of the aid beneficiary or beneficiaries.

(65) As regards bespoke development, the UK authorities
have agreed to subject the EP/PIP scheme to the rules on
regional aid and to other relevant State aid rules. To this
extent aid for bespoke development under the EP/PIP
scheme becomes compatible with the common market.

(66) However,

the UK authorities have not accepted the
Commission's proposal for notification in the case one
of the actors, (other than the end user), involved in the
project (land owner or developer) is active in the sectors
subject to the special Community State aid rules.

(67) As regards speculative development, the EP/PIP scheme
is being applied as if it did not involve State aid. It is
therefore
common market
because no account of the State aid rules is being taken
in its implementation,

incompatible with the

HAS ADOPTED THIS DECISION:

Compatibility of the aid

Article 1

(63) Having established that the EP/PIP scheme involves State
aid within the meaning of Article 87(1) of the EC Treaty,
the only way to render this scheme compatible with the
common market is to apply it in a way that complies
with the derogations provided under Article 87(3)(a) and
(c) of the EC Treaty.

(64)

For this purpose, the scheme, both in cases of bespoke
and speculative development should apply in accordance
with the relevant State aid rules, notably the Guidelines
on national regional aid (10), the multisectoral framework
on regional aid for large investment projects (11), the
Commission communication on State aid elements in
public land sales (12), the Community Guidelines on State
aid for environmental protection (13), the Community
Guidelines on State aid for rescuing and restructuring
firms in difficulty (14), the Community Guidelines on
State aid to SMEs (15), the Guidelines on State aid for
undertakings in deprived urban areas (16), the rules on
State aid to particular industries in the sensitive sectors
(synthetic fibres, motor vehicle industry, shipbuilding,
steel, coal, transport, fisheries, agriculture).

The EP/PIP scheme, as modified by the partial acceptance of the
appropriate measures (as referred to in recital 65) is compatible
with the common market provided that:

— the part of

is
brought under the State aid rules (referred to in recital 64),

the scheme on speculative development

— the UK authorities notify on the basis of Article 88(3) of
the EC Treaty, both in cases of bespoke and speculative
development, all cases where one of the actors involved is
active in the sensitive sectors (referred to at the end of
recital 64).

Article 2

This Decision terminates the Commission's authorisation of the
EP/PIP scheme under the scheme N 31/95 (Single Regeneration
Budget) as communicated to the United Kingdom by letter of 4
May 1995. Projects for which at least a formal application has
been submitted before the date of adoption of this Decision
will be processed as normally under the N 31/95 scheme.

(10) OJ C 74, 10.3.1998, p. 4.
(11) OJ C 107, 7.4.1998, p. 1.
(12) OJ C 209, 10.7.1997, p. 3.
(13) OJ C 72, 10.3.1994, p. 3.
(14) OJ C 288, 9.10.1999, p. 2.
(15) OJ C 213, 23.7.1996, p. 4.
(16) OJ C 146, 14.5.1997, p. 6.

Article 3

The United Kingdom shall communicate to the Commission,
within one month after the date of adoption of this Decision,
the measures taken in order to comply with this Decision.

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This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.

Article 4

Done at Brussels, 22 December 1999.

For the Commission

Mario MONTI

Member of the Commission