The European Commission has decided to open a formal investigation procedure to look into complaints about subsidies paid by the Scottish Executive to the Scottish ferry companies NorthLink and CalMac.

The European Commission said is aware that it may be that such support constitutes fair compensation for the provision of ferry services and complies with EU rules on State aid. However, the Commission requires more information to check that the mechanism used in recent years does not fall foul of these rules, in particular that there has been no overcompensation or undue distortion of fair competition.

"I am well aware of the importance of lifeline ferry services to ensure the survival and prosperity of isolated island communities in Scotland. This is actually a very important reason why we should ensure full compatibility with EC law and provide legal certainty for the way these services are organised," Vice-President Barrot said in a statement.

Following representations by third parties alleging that State subsidies to NorthLink and CalMac breached EU rules on State aid, the Commission has carried out a preliminary investigation. This decision formally opens the investigation procedure. The main issue to be addressed is whether the financing of ferry services by the public authorities has led to over-compensation, which could have distorted competition in related commercial activities.

The decision does not question the need for a regular and affordable lifeline ferry service for local communities, nor does it threaten the continued provision of such essential services in the future said EC. However, in line with EU Treaty rules, the mechanisms put in place to finance these services must remain proportionate to such public interest objectives.

The decision to open the formal procedure does not prejudge the final view the Commission will take once its investigation has been completed. It is addressed to the UK, which is given two months to file a reply. It will be published soon in the EU Official Journal for comments by interested parties.