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State aid, "preparatory works" and infrastructure projects

EU flag iStock 000009228887XSmall 146x219Does the European Commission's approval for a German infrastructure scheme involving grants to local authorities mark a shift away from the decision in the Leipzig Halle case? Alex Kynoch reports.

The European Commission has recently approved a German scheme providing direct grants to local authorities to carry out preparatory work on sites with a view to development. This was on the basis that the development of land by local authorities is part of their public tasks and so falls outside state aid rules.

Although the decision text is not yet available, the Commission has issued a press release on the decision setting out the facts and the basis for the decision. On the basis of the press release the Commission’s view is that where funding is provided to local authorities to carry out preparatory works (making the land ‘ready to build’ including connection to utilities and transport networks) this forms part of the authorities’ public duties and so does not constitute state aid.

This does not eliminate any potential aid to developers and contractors further down the chain as the scheme was approved on the basis that any disposal of land by the authority would be at market value (using the Commission’s published methodology for calculation) and that any developers and contractors are procured using an open and transparent process. This means the relevant works carried out by local authorities will not constitute economic activity and therefore the local authority will not be an aid recipient – even where it makes a profit selling the ‘oven-ready’ land. 

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Since the infamous Leipzig – Halle judgement many local authorities have taken a cautious approach to infrastructure projects due to the risk of them being classed as economic activity. This decision moves the position closer to that set out in the Welsh Development Agency property development scheme decision (SG(2001) D/ 285044) which stated that acquisition, disposal or leasing of land benefiting from development by the Welsh Development Agency did not constitute state aid. Again any transfers to third parties needed to be at market rate and any arrangements with contractors or developers needed to be procured openly and transparently.

Where local authorities are funding these activities internally and taking the same steps to ensure no state aid is granted to third parties this should not have constituted state aid in any event (as neither the authority nor the third parties receive aid) so this decision is only really relevant where external funding is being provided to the local authority.

Still, this is a welcome decision and will hopefully give local authorities (and funding bodies) renewed confidence when redeveloping land to promote regeneration in their areas.

Alex Kynoch is a Solicitor at Browne Jacobson LLP. He can be contacted on 0115 976 6511 or This email address is being protected from spambots. You need JavaScript enabled to view it..

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