SNP Secure EU Investigation Into Scottish Power Takeover SNP Fight Scotland's Corner In Europe

31 January 2007
The ScottishPower takeover by Spanish firm Iberdrola is to be investigated by the European Commission following SNP action to raise issues relating to the abuse of state aid rules by the Spanish Government.

Neelie Kroes, the European Competition Commissioner has now stated in a letter to the SNP that there are aspects of Spain'stax laws that need to be considered by the EU.Neither the Scottish Executive nor the UK Government have raised the issue at EU level.

The letter follows last week's leaked memo from the Scottish Executive, written for the First Minister by the Scottish Executive's senior official in its European Office, Michael Aron, which says that Whitehall departments ignore the views of the Scottish Executive when dealing with European issues, and that "can have a disastrous impact on Executive policy."

Nicola Sturgeon MSP, the SNP's Depute Leader, said of the development:

"It is very important that ScottishPower remains headquartered in Glasgow. We are pleased the EU Commission has agreed to investigate the Spanish tax incentive scheme which we believe represents unfair state aid.

"It is hugely disappointing that Jack McConnell and his Labour colleagues in London have repeatedly failed to stand up for Scottish interests. As last week's leaked Scottish Executive memo has demonstrated, Scotland's interests are not being properly served in Europe, which is why we need better and more proactive approachwith an SNP-led Executive.

"An SNP-led Executive speaking up for Scotland in Europe will be far better than the failing Labour/Lib Dem Executive, and independent representation for Scotland will be better still.

"We can secure success for Scotland by making our own case to the EU, rather than relying on others who know little and care less."

Alyn Smith MEP, who received the response from the Commissioner added:

"I welcome the response from the Commissioner confirming this investigation. If we are going to have competition and open markets, then there must be a level playing field for all involved. We cannot have a situation where foreign companies and governments are receiving unfair advantages when involved in takeover issues.

"I am glad that the Commission is treating this issue with the seriousness itdeserves, when at the same time the Labour and Liberal Democrat Scottish Executive and the London Labour government have sat back and done nothing to protect Scottish interests.

"This matter underlines the fact that until Scotland gets its own seat at the top table of Europe, only the SNP will defend Scotland's interests where it matters."

The full text of the Commissioner's letter to Alyn Smith MEP is as follows:

Neelie Kroes
Member of the European Commission
Brussels
10 January 2007

Dear Mr Smith

Thank you very much for your letter of 30 November 2006 concerning the proposed takeover by Iberdrola SA of Scottish Power plc.

In your letter, you underline the importance of Scottish Power for the Scottish economy and you refer to the Commission press statement IP/06/355 of 22 March 2006 concerning certain direct tax incentives in favour of export related investments in Spain.

Finally, you state that you would be grateful for an assurance that the takeover will be put on hold pending the outcome of a Commission investigation on the impact of these tax incentives on this takeover.As to the proposed Iberdrola takeover bid for Scottish Power, it has up to now not been notified to the Commission under the Merger Regulation of 20 January 2004 (QJL24, p1).

It is, in the first place, the responsibility of the bidding company to determine whether the proposed deal would fall within the Commission's jurisdiction under the Merger Regulation and as a consequence has to be notified to the Commission or whether it should be notified to national competition authorities.In all merger investigations by the Commission, the latter examines all competition issues arising from the proposed merger, including possible effects on a company's position of unlawful and incompatible State aid, to the extent that the aid in question has not be recovered.Furthermore, with the exception of the public bids, the EU Merger Regulation does not allow proposed transactions to proceed until theCommission has reached a decision to approve the merge or not, unless a special derogation is granted to this effect.

That decision is adopted in accordance with a binding timetable laid down in the Merger Regulation, either after the preliminary investigation (25 working days after notification) or after an in depth investigation (90 working days after concluding the preliminary investigation).As regards the tax incentives scheme to which you refer, there seems to be two distinct fiscal measures, both potentially applicable in case of an acquisition of a foreign company by a Spanish undertaking.

The first one is a tax credit on the costof any foreign investment, including the purchase of shares of a foreign company , provided the investment relates to possible exports of Spanish products and services. Following a State aid review under the cooperation procedure for existing aid, the Commission asked Spain to gradually repeal the measure by 2010.

As the Spanish authorities have undertaken to phase it out starting from 1st January 2007(see 1P/06/708 of 1st June 2006), any possible advantage ensuing from this measure would be lawful under State aid rules.

The second measure provides for a special 20-year depreciation of the cost of financial goodwill, being the excess price paid for the acquisition of a foreign company's stock over the relevant book value. To date, this incentive has not been examined by the Commission, nor has Spain notifiedit for State aid review.

In accordance with the principles mentioned above, if and when the proposed takeover is notified or referred to the Commission, we will investigate, among other things, whether and to what extent the tax incentives scheme referred to has an influence on the competitive assessment of the merger. However, the Merger Regulation does notallow any derogation from the timetable indicated above form this purpose.

Yours sincerely,

Neelie Kroes