Individual support to companies during the corona crisis
Have lessons from the past been applied?
Ministers applied lessons learned from previous support operations when assessing applications during the corona crisis for individual financial support from companies such as KLM, IHC and HEMA, so concludes the Netherlands Court of Audit from an investigation published on 12 November 2020. The ministers usually considered whether the applications were adequately motivated and explored alternatives where necessary. NS, the Dutch train operating company, and ground handlers at Schiphol airport, for instance, were referred to other schemes. The Court of Audit also found, however, that not everything was in order
The Court investigated the ministries’ decision-making procedure for 4 companies that received tailored government support during the corona crisis and 3 companies whose applications were rejected. The investigation found that ministers first assessed what support was available from non-governmental stakeholders to save a company. Support that might be incompatible with the single market was also usually reported to the European Commission in a timely manner.
€3.5 billion undertaking
Between March and August 2020, the government undertook to provide more than €3.5 billion in new funding to support individual companies. HEMA did not receive individual support from the Minister of Economic Affairs and Climate Policy (EZK) because it is essentially a commercially healthy business. The Court considered whether the lessons learned from parliamentary investigations and audits it had performed in past decades had been applied during the corona crisis. The 16 lessons learned are summarised (in Dutch) ’in the report we published in June.
Multistep plan and bail-in plan
Limited bail-in of KLM
The report reveals that the government overplayed its hand by prematurely announcing that it would provide billions of euros to save the national airline, KLM. This ‘bailing in’ of KLM, however, was limited during the period investigated (until 1 September). The State bears 93% of the risk and the banks have only limited risk. The Court sees parallels in this case with the rescue operations for Fokker and NedCar in the 1990s. Furthermore, there is a risk of a conflict of interest in the current support for KLM owing to the dual role played by ABN AMRO as a financier of the support and adviser to the ministry about the support
Risk at IHC greater than reported by the minister
The government helped save shipbuilder IHC in order to prevent the loss of €395 million already provided in export credits should the company collapse. According to the government, this support operation would increase the risk to the State to €700 million. The Court of Audit found, however, that the maximum risk to the State was €895 million. The Minister of EZK has not fully informed parliament of this risk. The intention to provide this support should have been announced in the course of a preliminary parliamentary scrutiny procedure so that parliament could form an opinion on it.
Assessment framework produced in the middle of a crisis
The government published a framework to assess applications for support on 1 May 2020. The framework highlights, among other things, the importance of understanding whether a company is a going concern when it applies for support. The assessment framework makes up for the absence of a systematic plan to assess individual support applications.
What are our recommendations?
The Court of Audit recommends that the assessment framework be expanded upon in several areas and be given a formal status. It also recommends that the law on when a preliminary parliamentary scrutiny procedure must be followed should be formulated more clearly.
What methods did we use in our investigation?
We based our investigation on the 16 lessons learned from previous investigations and audits, as set out (in Dutch) in our 16 Lessons Letter of 26 June 2020. We asked whether each of the lessons had been applied in 7 recent cases. The support operations we investigated varied as to their financial size, public interest, decision-making procedure and form of the support. Not all the lessons were therefore relevant to all the cases. Furthermore, when it was decided not to provide support some lessons were not applicable all. The investigation looked chiefly at the lessons, not the support operations. An overall opinion therefore cannot be expressed on each case. That would require a deeper investigation of each support operation and a validation of the underlying material. We carried out a brief investigation to consider the application of the lessons learned in the current support operations. We held interviews with those involved and studied relevant documents.
Why did we investigate the current support operation for companies?
The government often states that each individual situation is exceptional and unique and that time is pressing. However, no situation is so unique that lessons learned in the past cannot be applied. The current support operation does not differ fundamentally from other support operations or other government projects involving a lot of public money in a short period of time.
This investigation is part 2 of a larger study. We published part 1 with the 16 lessons on 26 June 2020.
In a written response, the Ministers of Finance, EZK, and Infrastructure and Water Management agreed in part with the Court of Audit’s recommendations. The ministers did not think it was necessary to amend the law. Their response was published on our website at the same time as our report
In its afterword, the Court of Audit considered a number of cases, such as KLM and IHC, and stressed the importance of informing parliament in a timely manner, particularly if the State was involved in the establishment of a legal person under private law.
The report was published and submitted to parliament on 12 November 2020.