The €366-million loan to Jaguar Land Rover (JLR) passed by the European Investment Bank in early April for making low-emission cars, has now hit the wall in Whitehall with the UK government dithering on providing guarantees for the loan.

On 7 April, the EIB had passed the Tata-owned UK car maker's loan application for €366 million, a part of the £2.3-billion package approved by the UK government for the UK car industry. (See: Tata's JLR receives £340 million from EIB / Britain unveils £2.3-billion loan for car industry)

The €366-million loan for making low-emission cars was supposed to be underwritten by the UK government, and the EIB cannot disburse the loans to JLR since the UK government is not willing to guarantee the loan if JLR goes bankrupt.

Media reports, quoting company officials, say they believe the government has deliberately set out tough conditions for underwriting the loan so that it can wriggle out of not committing itself to it.

JLR was also negotiating with the UK government for an additional £500 million working capital loan, with the loan repaid at commercial rates within two years as JLR, had been seeking financial help from the UK government, not because it needed a bailout, but required liquidity to run its day-to-day operations since the UK banks had stopped lending.

But the government apparently wants JLR to provide its plants, factories and current stock of cars as security in order to stand guarantee to the EIB loan as well as for the additional £500 million working capital loan.

The government has rubbished media reports about trying to wriggle out of providing guarantees to the EIB and said that it was seeking normal security, which is the standard norm for providing a loan.

In March, speaking for the first time against the policy of a foreign government, Ratan Tata told Sky News and Birmingham Post after launching the Tata Nano, that the UK government should understand that JLR was seeking a loan from the government for working capital as UK banks have stopped lending, and not a bailout.

"If the attitude is to see who blinks first, then the damage is going to be quite devastating," Tata said and added, "What we have asked for is not a bailout. What we have asked for is help from the government to facilitate commercial loans, because the banking system has come to a halt."

JLR, with nearly 15,000 employees, is the largest employer in the UK auto industry and the EIB loan would have boosted the automakers R&D effort since it spends £400 million a year on R&D or around a third of the UK's total annual investment in automotive R&D, in one of the most modern auto research facilities in the UK.

JLR, apart from being an iconic UK brand, also provides approximately £1.3 billion annually to the government coffers, which includes approximately £1.1 billion in VAT on JLR sales and another £200 million by paying tax and national insurance paid by JLR employees.

Last year, JLR made over £600 million in profit, spent £2.5 billion with suppliers and its exports were over £4 billion.

In the current year, first quarter sales of cars in the UK have plunged by 30 per cent and Jaguar sales was down 30 per cent while Land Rover sales was down 37 per cent in March compared with the same month last year.

Commentators in the UK say that if the government is not willing to underwrite the loans, then it should force the banks to start lending since the government has pumped in billions of pounds into the banks to keep them afloat as well as to start lending to small and big businesses.