Under the State aid rules, enshrined in TFEU, investment from public resources (typically such as grants, loans, guarantees and capital injections) that benefits a particular business, cannot lawfully be granted unless it is:
- notified to, and approved by, the European Commission in advance; or
- covered by an aid scheme pre-approved by the Commission; or
- exempt under one of a number of block exemption regulations.
Presently, support for ports and airports is not covered by any of the block exemption categories (although see preceding post about proposed amendments to the GBER to bring ports and airports within the scope of the GBER by April 2017) meaning that it is invariably subject to upfront European Commission scrutiny, either on a case by case basis, or as part of a wider scheme, before the Commission grants ex-ante approval.
Whilst very much case specific, the notification and approval process can – typically – take at least six to nine months, thereby significantly impacting upon a scheme’s delivery and viability as public authorities are obliged to “stand still” and not make any investment decisions prior to the Commission giving its decision on a project’s State Aid compatibility.
Nevertheless, when considering State Aid implications, it is important to refer back to TFEU to highlight certain area of port infrastructure and operational services which are not State Aid, may be State Aid, and will almost certainly be State Aid:
No State Aid
- The funding of certain investments in port infrastructure linked to activities that normally fall under the State’s responsibility in the exercise of its official powers as a public authority which are not of an economic nature and do not fall within the scope of the State aid rules – e.g. maritime traffic control, police, customs, anti-pollution surveillance, control and security of navigation;
- State Aid to repair storm or structural damage to a port (e.g. to a quay wall or breakwater) to repair the loss or damage providing that strict safeguards are in place to ensure no over-compensation.
May be State Aid
- Construction of access infrastructure (e.g. public road, rail, utilities etc.) to ports which is made available free of charge to all users and is thus not commercially exploitable, may be considered as non-economic, as long as it is ensured that it is not specifically dedicated to the activity of the operator in exploiting the port infrastructure but benefits the population as a whole (See Decision N.503/2005 – United Kingdom – Great Yarmouth Outer Harbour (21 December 2005); and,
- Other activities, e.g. dredging or breakwater works, are not of an economic nature per se particularly if they improve navigation and/or safety for all users of port infrastructure [see recital 23 of ‘Financial support for infrastructure works in Flemish ports’ (N520/2003 (20 October 2014)]
Almost certainly State Aid
- The provision of land in a port at less than market value;
- The provision of facilities or services in a port at less than market value;
- The writing off of fees or payments in a port when a ‘market economy operator’ would not have done so;
- The provision of favourable but discriminatory tax breaks (eg reliefs or rates) for port activities [NB Current EC investigation into alleged aid at France, Belgium (Antwerp Port) and the Netherlands (https://goo.gl/nMMZqY and https://goo.gl/BsP7q7)];
- the provision of investment by state bodies on terms that a market economy operator would not have invested;
- Activities such as dredging or breakwater works, the purpose of which is directly linked to the development of a port infrastructure which is commercially exploitable, constitute economic activities; and,
- the construction of port infrastructure that is supposedly open to all but is in fact destined for one operator or a select number of operators.
MEIP/MEOP (market economy investor/operator principle)
Where the State acts under same terms and conditions as a commercial investor when providing the necessary funding, no State Aid is involved. Proof would be required of:
(i) significant pari passu co-investments of commercial operators, i.e. on the same terms and conditions; and/or
(ii) the presence (ex ante) of a sound business plan (preferably validated by external experts) demonstrating that the investment provides an adequate rate of return for the investors, in line with the normal market IRR that would be expected by commercial operators on comparable projects taking into account the specific circumstances of each case
Services of General Economic Interest (SGEI)
A public authority could conditionally provide a maximum of €500,000 block exempted aid over 3 years to ports.
SGEI Decision Ports & Airports
For the purposes of providing SGEI, a public authority may award compatible State Aid of costs plus a reasonable profit for construction, renovation, extension necessary for the delivery of SGEI (whilst ensuring that no over-compensation occurs) providing that annual aid does not exceed €30M and where a port’s annual traffic in last two years has been ˂300,000 passengers and with annual turnover is ˂€100m in last two years.
NB It would be difficult to claim support for building or operating port infrastructure in areas already served by adequate transport links, but such a claim would have a higher likelihood of success in peripheral regions of the Union and/or in an Article 107(3)(a) area (See SA.30742 (N/2010) – Lithuania – Construction of Infrastructure for the Passenger and Cargo Ferries Terminal in Klaipeda (22 February 2012) which, although not a SGEI decision, is nevertheless an important State Aid decision in relation to port infrastructure).
Whilst the State Aid regulatory regime for ports is going to ease considerably as the European Commission’s proposals to amend the General Block Exemption Regulation to ensure that qualifying support will no longer be subject to the pre-notified obligation and no longer be subject to individual ex-ante scrutiny by the Commission, not all public investment is necessarily incompatible State Aid.
It is therefore crucially important that public authorities undertake a risk based State Aid assessment of any proposed port infrastructure scheme to fully understand its scope and whether a scheme is State Aid compliant or not. As this blog post attempts to show, not all aid is State Aid and often, with a few adjustments, a scheme can be re-designed to be State Aid compliant and thereby avoid prior notification to the European Commission.
For an informal and confidential discussion on this or any other aspect of State Aid, please contact Arfon Consulting Ltd.