Thursday, August 20, 2009

Automotive Assistance Programme Criteria

Market and Economic Criteria

In assessing applications a determination will be made on whether the Government’s support represents value for the use of public money.

Financial reports and internal business plans containing information on demand forecasts; cost forecasts; financial forecasts, documents that are submitted to an investment committee and that elaborate on various investment scenarios and/or documents provided to the financial markets by applicants are all likely to be helpful in assessing both 'additionality' and economic benefits as outlined below.


The Government needs to be sure that it grants guarantees or loans where this genuinely makes the difference between the project happening or not, or whether the support genuinely influences the quality or scale of the activity. Provision of support can only be value for money if it passes this additionality test.

In assessing additionality, the following will be taken into account:

  1. Counterfactual analysis: assessment of an application will seek to understand how the firm’s activity would be different with and without this guarantee or loan. The difference between the two scenarios is considered to be the impact of the aid measure and describes the incentive effect of the guarantee or loan.
  2. Level of profitability: if a proposal would not, in itself, be profitable to undertake for a private undertaking, but would generate important benefits for society, it is more likely that the guarantee will have an incentive effect. To evaluate the overall profitability, analytical methods used might include evaluating the Net Present Value (NPV), the internal rate of return (IRR) and/or the return of capital employed (ROCE) on the project.
  3. Amount of investment and time path of cash flows: high start-up investment costs, limited appropriable cash flows and a significant fraction of cash flows arising in the very far future should be considered positive elements in assessing the additionality of an award under AAP.
  4. Level of risk involved in the proposal – support is less likely to be additional where the proposal is low risk

Economic Benefits

All proposals should contribute positive benefits to the economy. This means that the value of the tangible and intangible benefits must exceed the level of subsidy provided by the guarantee or loan. The net economic benefit of the proposal will be calculated drawing on the financial information for the proposal and market analysis.

Where there may be wider benefits not captured within the firm’s own data, these will also be assessed, they are likely to include:

  1. Research and Development activity: Often, where research and development is undertaken the benefits of the activity spread beyond the firm that invested. The assessment of economic benefits will take into account information from the applicant about their research and development plans to judge whether there may in fact be wider economic benefits. In this case, such benefits are likely to be priced in line with the EC R&D&I framework.
  2. General training: Where a firm invests in training, the benefits of improving the skills level of the workforce can be felt beyond the firm. Where this may be the case, such benefits are likely to be priced in line with the EU General Block Exemption training aid guidelines, so applicants will need to state whether they have training plans as part of their proposals.

In addition, an assessment will be made of whether the support represents value for money in terms of the employment created or safeguarded. The applicant should provide details of the jobs that (a) will be created and/or (b) will be safeguarded as a result of the proposal going forward. This should include details of both the skills and salary levels of the jobs created or safeguarded. In determining value for money, the level of deprivation and local labour market conditions will also be taken into account.

Technology Criteria

Applicants must provide the following information about their proposed projects covering how innovation will deliver reduced carbon emissions:

1. Is the proposal related to vehicle production? If yes, please provide details of how the new production process(es) will reduce carbon emissions, reduce the use of hazardous substances, and/or improve resource efficiency. Where relevant, please explain how the new process(es) will:

  • Adopt renewable energy sources;
  • Minimise heat loss;
  • Provide more efficient water use;
  • Introduce water-based/low solvent emission paint technologies;
  • Reduce exposure to hazardous substances;
  • Increase recycling of waste materials from production.

2. Is the proposal related to vehicle use? If yes, please provide details of how the project will ensure compliance with, or exceed the requirements of, the following European regulations on vehicle carbon emissions and air quality (where applicable):

  • EU CO2 regulations on cars
  • EU CO2 regulations on vans
  • Euro 6 regulations on cars (air quality)
  • Euro V/VI regulations on HGVs (air quality)
  • European Directive 2004/26/EC (construction equipment sector)

3. For proposals related to vehicle use, please provide details of the technology that will deliver lower carbon emissions; for example, through innovation in vehicle design or engine technology.

4. For proposals covering both vehicle production and vehicle use, please provide a summary assessment of the contribution which the new technology will make to reducing carbon emissions over the life cycle of the vehicle.

5. For proposals covering both vehicle production and vehicle use, please provide an assessment of the research and development requirements of the project, including the R&D stages for which support is sought [basic, applied and/or demonstration].

6. For proposals covering both vehicle production and vehicle use, please provide details of opportunities for suppliers to contribute to the project, both in terms of intellectual property and manufacturing opportunities.

7. For proposals covering vehicle use, please provide an assessment of the technology’s wider market potential. What contribution will it make to vehicle sales?

Financial Criteria

1. Guarantees may potentially be provided to support the following investment areas directly linked to the project:

  • Research & development (basic research, applied research and demonstration)
  • Capital expenditure – e.g. investment in new production facilities; new materials; prototyping; tooling; land and building costs – but in all cases linked to the project and the project’s duration
  • Staff costs linked to the project
  • Training costs linked to the project

Recoverable indirect taxes are excluded.

2. The applicant must provide evidence of having exhausted private sector sources before seeking either a guarantee or loan eg. evidence that a bank/banks have refused to fund. In general, HMG would expect to offer loan guarantees rather than direct loans to minimise the risk to the tax payer. Applicants seeking loans must demonstrate why the project cannot be financed on the basis of a Government guarantee or a third party loan and ensure their project is in line with EU Commission conditions for loans. It must also give details and demonstrate how and when the guarantee/loan will no longer be required/repaid.

3. In accordance with the European Commission’s Temporary State Aid Framework, under which this support scheme is provided, the following conditions as a minimum must be met and we would ask applicants to provide evidence demonstrating2:

  • that the company is viable and, in particular, was not a firm in difficulty before 1 July 2008 according to the EU Commission’s view of what constitutes a firm in difficulty . The EU Commission regards a firm as being in difficulty in where it has lost more than half its capital, and more than a quarter of it over the previous 12 months.
  • That the maximum guarantee or loan sought does not exceed the total annual wage bill of the applicant (including social charges and the cost of on site subcontractors) for 2008.
  • Under the current EU Commission’s Temporary State Aid Framework, guarantees or loans must be granted by no later than 31 December 2010.
  • Loans must be specifically linked to projects that involve early adaptation to or go beyond future European Community product standards on environmental protection.

The applicant should provide evidence that their application meets the above conditions, particularly on viability.

4. The Government is likely to require part or all of any guarantee or loan to be secured against the applicant’s assets and/or those of a parent company (where applicable), depending on the risk exposure for the taxpayer. The applicant must provide a summary of assets, including their current value, that are available to provide security.

5. The Government will charge an appropriate fee or interest rate to reflect HMG’s administrative costs and expected risk involved and with the aim of ensuring that the Government achieves good commercial value. The actual fee or rate will be set on a case by case basis and must comply with State Aid law. The Government is prepared to use the flexibilities available under the Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis in arriving at the appropriate fee or rate for the loan guarantee/loan.

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