The European Commission has launched an investigation into plans by Slovakia to grant €125 million (£108m) to Jaguar Land Rover (JLR) to support the construction of a new plant in the country.

The money from the Slovakian government had been promised to support JLR’s construction of a £1 billion factory in the city of Nitra. The plant, due to be completed in 2019, would have a production capacity of 150,000 cars per year. The €125m subsidy, announced in May 2016, is the maximum aid that can be granted.

EU state aid rules allow countries to support economic development and employment programmes in less developed regions, but hey must meet certain criteria to be approved. These include that state aid must promote private investment, be kept to the minimum necessary and not lure investment away from another EU member state.

Margrethe Vestager, the EU Commissioner in charge of competition policy, said: “It is a good thing if public investment fosters economic growth in Member States. However, we need to avoid harmful subsidy races between Member States.

“The Commission will carefully investigate if Slovakia’s planned support is really necessary for Jaguar Land Rover to locate its investment in Nitra and is kept to the minimum needed if it distorts competition or harms cohesion in the EU.”

The Commission is also investigating whether other elements of the agreement are free from state aid. These include Slovakia’s transferral of land for the car plant to JLR, and exemption from a fee payable for converting agricultural land into industrial land.