DTI attempts to avert inquiry into state aid for Rover

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THE GOVERNMENT was last night in 11th-hour talks with the European Commission in a bid to avert a full-blown inquiry into the award of pounds 152m in state aid for Rover's Longbridge plant in Birmingham.

Commission sources have indicated that a formal investigation into the aid package could be announced as early as tomorrow and last up to 18 months.

However, the Department of Trade and Industry said yesterday that its officials were still in discussions with Brussels about the fine details of the package.

The state aid is tied to a pounds 1.7bn investment in a new medium-sized car for Longbridge, which would preserve at least 9,000 Rover jobs and a further 50,000 in the component industry.

A DTI spokeswoman refused to respond to Commission claims that it was considering withdrawing the aid request and resubmitting another proposal involving less financial support.

Brussels is concerned that neither the Government nor BMW have demonstrated satisfactorily that the aid is necessary to prevent the investment going outside the European Union.

BMW claims that it had considered manufacturing the new Rover car in Hungary instead. But details of where in Hungary the plant might have been located and how much aid was on offer remain sketchy. The Hungarians seem as mystified about the aid application as the Commission.

Despite the threat of a prolonged EC inquiry, a BMW spokesman said it remained "cautiously optimistic" that the aid package would be approved as it stands. "Our belief is that the package fully meets the legal and technical requirements of state aid," he added.

BMW refused to be drawn on whether it would review the project if the state aid was delayed or reduced. The first stage in the redevelopment of Longbridge - a pounds 400m investment in a new Mini - has already started and the factory that will build the car is complete.

A site has been cleared ready to start work on the new medium-sized car plant but no buildings or equipment have yet been installed. The aid - pounds 129m in central government grants and pounds 23m in local authority support - is payable in six phases with the bulk of the DTI money kept back until 2002-2004.