EU rules will curtail IDA grants to lure investment in the regions

New EU rules on state aid for big investment projects will significantly curtail the grants that IDA Ireland can offer multinational firms to locate in regional locations from January 2004, writes Jamie Smyth.

Under the regulations, the Government will only be able to offer firms 50 per cent of the current regional aid available for projects worth €50 million or more. For any investment projects worth more than €100 million, the level of grant aid allowed will be 34 per cent below the current levels.

Lower grant aid limits will also apply to Dublin and the south-east regions. All projects worth more than €50 million will also face a lengthy approval process and greater scrutiny from the EU.

The EU is introducing the new rules to make the grants framework simpler and more transparent for managing regional aid for large investment projects.

In an article alerting overseas investors to the changes, IDA Ireland warns that the rules bring forward the curtailment of regional aid in the Republic that would be happening automatically in 2007, as the EU revises the status of the State's "objective one" and "objective one in transition" regions.

Currently, the western and north-western regions of Ireland are accorded objective one status by the EU, which enables them to receive much higher grants than the rest of the State. Yet, even with the higher grant levels available, the regions have struggled to attract inward investment.

In the first six months of the year, IDA figures show that just seven out of 20 new projects were attracted to the regions. It also failed to persuade online auction firm eBay to set up in Athlone, despite offering high grants.

Western Development Commission chief executive Ms Lisa McAllister said her organisation was very concerned about the implications of the new rules. The west needed competitive grants to attract companies because of its infrastructural deficit compared to other areas, she said.

The new rules, which operate under the EU's Multisectoral Framework on Regional Aid for Large Investment Projects, may also reduce Ireland's competitiveness against non-EU states.

Mr Dick Ryan, a secretary of IDA Ireland, recently told a specialist investment magazine that the new laws would make non-EU states, such as Switzerland and Singapore, more competitive by comparison.

The IDA is concerned that a new requirement to seek EU approval for an intended grant for a large project will significantly delay its work. Under the rules, the EU will publish the proposed investment on its website, potentially enabling Ireland's non-EU competitors to try to scupper the investment project.

A Government source said yesterday that it had lobbied against the proposals that were drawn up in March 2002 by the European Commission.

The Government persuaded the EU to exempt innovative projects that would create completely new products from the new rules, said the source.