COMPLAINTS have emerged that ministers sanctioned illegal state aid by ploughing in over £130m of taxpayers money to prop up the beleaguered shipyard at the centre of Scotland's ferry fiasco.

Details containing evidence of breaches have been passed to the European Commission stating that the Scottish Government broke the 'one time last time' principle for supporting failing companies under EU state aid rules.

Ministers sanctioned a second bailout loan worth £30m less than a year before Ferguson Marine Engineering Limited (FMEL) fell into administration in August, 2019 but EU rules indicate further support could not be provided until after a ten year period had elapsed.

Investigations have further revealed a potential further breach of the laws by injecting just over £100m of taxpayers' money into Ferguson Marine in 2020 and 2021 after ministers nationalised the last commercial shipbuilder operating on the River Clyde.

The UK was bound by EU state aid rules until after the Brexit transition period ended on December 31, 2021.

It comes as confidential papers revealed how ministers were looking to fashion their intervention at the yard owned by then independence-supporting tycoon Jim McColl to try and avoid any allegations of unlawful state aid.

EU sources confirmed that it was not notified of its involvement in keeping Ferguson Marine from the scrap heap.

READ MORE: Ferguson Marine chief gets £20k golden hello in bonuses 'scandal'

Under EU rules, member-state governments are required to notify the European Commission – which is in charge of treaty compliance – about proposed state aid moves.

The Herald: Flags are waved at a launch ceremony for the liquefied natural gas passenger ferry MV Glen Sannox, the UK's first LNG ferry, at Ferguson Marine Engineering in Port Glasgow..

The Scottish Government took control of Ferguson Marine after it went under because of the soaring costs of a contract with Caledonian Maritime Assets Ltd (CMAL), the taxpayer-funded company which owns ferries and other infrastructure used by publicly owned operator CalMac.

It is thought the costs of the £97m project for two ferries - Glen Sannox and Hull 802 - have quadrupled with delays to their arrival to serve island communities reaching over five years.  Meanwhile islanders are being hit by lifeline service cuts as parts of the ageing ferry fleet break down due to lack of investment in new vessels.

Mr McColl, who rescued the yard when it went bust in 2014, blamed repeated design changes by CMAL for its demise.

The intent of state aid rules is to ensure effectiveness in public spending by avoiding financial assistance given by a government that favours a certain company or commercial group and has the potential to distort market competition. The rules were set to insure against the negative effects of state aid interfering with the need to boost productivity and growth, preserve equal opportunities for undertakings and combat national protectionism.

The rules are also in place to create what is called "the moral hazard problem" where firms anticipating that they are likely to be rescued when they run into difficulty may embark upon excessively risky and unsustainable business strategies.

Measures which fall within the definition of state aid are considered unlawful unless provided under an exemption or notified by the European Commission.

The Herald understands that complaints regarding Scottish Government state aid breaches have been lodged with the European Commission.

The Glen Sannox 'launch' of 2017.

If a state aid investigation was launched and found proven, the commission could ultimately demand the recovery of money pumped in before and after Ferguson Marine's financial collapse.

Robert Menzies, a retired architect who studied procurement law to advise clients and has been tracking the taxpayer money flow with a view to potentially lodging his own complaint to the European Commission says that ministers were acting illegally in its bailouts.

He said any complaint would "set the cat among the pigeons".

He said:"It is argued that there was... no need to notify the Commission - because it was a commercial loan. "In other words it was made in a manner that a bank would forward a loan to a company therefore did not distort the market. But what investment institution would plough money into a clearly failing enterprise which Alex Salmond had had to persuade [Jim McColl] to buy."

The breaches surround the'one time last time' principle within the rules set by the EU under which state aid can be used for rescuing and restructuring undertakings in difficulty.

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Guidance on how to comply with EU law state that the European Commission "will not normally allow new rescue or restructuring aid to a company unless ten years have elapsed since the first tranche of support".

And it says that when aid is sent to a business group member it "must demonstrate that no aid will be passed on... to an earlier beneficiary of aid".

But two loans were provided in the space of under a year.

An unsecured £15m Scottish Government loan provided in September, 2017 as Ferguson Marine struggled with the ferry contract and was in danger of going insolvent was followed by a £30m loan in June 2018.


Public spending watchdogs Audit Scotland said that the £15m loan "was not transparent". CMAL, along with Ferguson Marinercustomers and suppliers, became aware of the loan in April 2018 - seven months after it was awarded.

Mr Menzies said: "Whilst the first loan to Ferguson Marine of £15m in September, 2017 was legal, all subsequent loans are not."

The rules also state that the 'one time, last time' principle applies to a company when that is taken over as Ferguson Marine was by ministers when there is "economic continuity" between the old undertaking and the purchaser.

Mr Menzies said: "That means that any new aid must be divorced from current or previous activities for which loans had been granted. There is clearly economic continuity. So subsequent [aid] was illegal as the 'one time last time' principle was still active."

The Scottish Government ploughed in £16.2m of public money into Ferguson Marine after it was nationalised in 2019/20 and a further £84.7m in 2020/21 while they were still governed by the EU state aid laws.

The Scottish Government has previously been found to have given £50m in illegal state aid to two Scottish airports.

The European Commission found that more than £20m provided to Inverness between 2012 and 2017, and £35.4m to Sumburgh was "illegal state aid" in breach of the Treaty on the Functioning of the European Union (TFEU), which states that aid measures must not be put into effect before it had authorised it.

Concerns over a cover-up over the loans have come as Scottish Government documents show that while ministers were publicly saying that the £30m loan was in place to diversify the business - it was actually because Ferguson Marine was in financial trouble while dealing with the calamitous ferries contract.

READ MORE: Ferry debacle has made Scots transport minister 'the job few want'

The yard's former owner Mr McColl who has spoken out about a planned money trail inquiry over the spending on the ferries told the Herald the real reason for the £30m loan was not divulged to avoid unlawful state aid issues.

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Then finance secretary Derek Mackay said the £30m was a 'strategic investment in our industrial capability as both the marine engineering sector and commercial shipbuilding have vital roles to play in Scotland’s future'.

But internal Scottish Government documents reveal that the agreement was clearly linked to the delivery of the vessels and the dispute between Ferguson Marine, which was then a struggling company, and CMAL over the rising ferry costs.

The Scottish Government money trail shows that Ferguson Marine has received over £450m of public money before and after nationalisation while its overriding task was to deliver the ferries.

An EU spokesman declined to comment.

A Scottish Government spokesman said: “The Scottish Government has acted lawfully throughout the process of saving Ferguson Marine shipyard.

“We stand firm on our commitment to completing the two lifeline vessels at the yard. The delivery of the vessels is critical to supporting the lifeline ferry network by adding two new badly needed vessels to the Calmac fleet."