Indemnity payment upon expiry of maritime State concessions in Italian ports: is the indemnity coming?

We take the cue from the recent publication of an application for the granting of a maritime State concession under Article 18 of Law No. 84/94, to review the latest developments on the subject of a potential indemnity payable upon expiry of State concessions.

The idea that an outgoing concessionaire should be compensated by an incoming concessionaire based on the principles of equality and non-discrimination of potential concessionaires seems to begin to take hold.

The Port System Authority (“PSA”) of an Italian port published a notice whereby, besides inviting any interested third parties to submit their competing applications, specified that, upon expiry of the concession, the incoming concessionaire would be required to pay an all-inclusive compensation to the outgoing concessionaire as determined by the competent PSA.

As clarified by the PSA, such compensation should consider:

• the remaining amortisation amount related to any investments made by the outgoing concessionaire at its own expense, insofar as they are provided for by the concession or in any event subsequently authorised by a PSA, which are still to be fully recovered upon the expiry of the concession through full amortisation under applicable tax regulation;
• the value based on goodwill, to be determined by considering, among other things, discounted cash flows of expected average income in light of the term of the concession, based on the average income reported in income tax returns in respect of the last three tax periods.

This legal technicality has developed on the basis of previous rulings by the Italian Antitrust Authority ("AGCM") and the interpretations of the doctrine.

First, the Italian Antitrust Authority (i.e. “Autorità Garante della Concorrenza e del Mercato”), when dealing with issues related to State concessions, has always recommended “the use of competitive, transparent and duly promoted procedures, aimed at ensuring fair competition among the operators of the sector, at minimising administrative discretion and ensuring compliance with the EU principles of equal treatment, non-discrimination, transparency and proportionality”.[1]

Moreover, as early as 1998, the AGCM had enunciated an important principle, stating that "the duration of the public tenders, and therefore the duration of the concessions, should normally be justified on the basis of technical, economic and financial assessments. However, it is not essential that this duration be parameterized to the period of recovery of the investments necessary for the performance of the activity, since the value, at the time of the tender, of the investments already made by the concessionaire can be placed as a basis for auction. In this way, the need to repay the unpaid costs incurred by the concessionaire would be compatible with the granting procedures consistent with both the principles of competition and the incentives to make the investments. The granting body could also give indications during the call for tender regarding the type and size of the investments that the aspiring concessionaire would be called to carry out. In this light, obviously, the cases of automatic renewal of concessions should be eliminated".[2]

It is now clear that, in order to apply such principles, (both outgoing and incoming) concessionaires must be put on an equal footing.

In order to compare the applications of various undertakings, investments made by an outgoing concessionaire and not yet recovered through amortisation and goodwill should therefore be considered too in order to prevent the concessionaire from enjoying an a-priori advantage. Otherwise, any outgoing concessionaire might be “favoured” when strategically opting for making investments in the last few years of the term of its concession in order to obtain the extension of the same.

On the contrary, the provision for an indemnity would allow assessing bids without considering lack of amortisation and then selecting the business operator who gives “better guarantees in terms of profitable use of the concession and proposes to use the concession for purposes that, according to public authorities, better meet public interest”, precisely as provided for by Article 37 of the Italian Navigation Code.

Finally, the Italian Transport Regulation Authority, by decision No. 57/2018, whereby “Methodologies and criteria for ensuring fair and non-discriminatory access to port facilities. First regulatory measures” were approved, stated that “in the formal notice” whereby concession over a State-owned area is granted “[...] the criteria for assessing and identifying any relevant indemnity shall be set out, inter alia, in a clear and detailed manner”.

The above trend must be welcomed by concessionaires in that all stakeholders’ interests are protected, namely:

• outgoing concessionaires will be able to invest for the entire duration of their concession, being aware that any investment not recovered through amortisation will be indemnified by the incoming concessionaire; and
• incoming concessionaires may apply for a concession, being aware that the outgoing concessionaire will be prevented from taking advantage from any investment not yet amortized.

We hope that the payment of an indemnity will be considered by all Italian PSAs, in this way ensuring compliance with the principles of equality, transparency and non-discrimination. Lastly, it should be noted that, on the one hand, this direction is certainly noteworthy, since it allows the industry's development to be prompted faster by making timely investments, without having to wait until the end of the concession, on the other hand, it raises a underlying theme, that is, if this indemnity obligation can also be imposed on the aspiring concessionaire who intends to carry out a business activity different from that of the incumbent concessionaire.

This last aspect deserves special attention on how the AdSP intends to address the issue of "zoning" with its planning tools (i.e. with the port master plan). The evident corollary of the above is that only a precise, punctual and sectoral identification of port activities will be able to help solve the criticalities mentioned above, however to the detriment of a flexibility that is sometimes required from port infrastructures in order to accommodate changes in the market.

This article is for information purposes only and is not intended as a professional opinion. For further information, please contact Ekaterina Aksenova.

[1] See AS1499 - ART- Methodologies and criteria for ensuring fair and non-discriminatory access to port facilities (see also AS135 Extension of motorway concessions, in Bull. No. 19/98, AS152 Measures for the revision and replacement of administrative concessions in Bull. No. 42/98, AS481 Norms concerning maritime state-owned areas with recreational tourism purpose in Bull. 39/08, AS551 Maritime state-owned property concessions in the Calabria region, in Bull. No. 28/09, AS1114 Concession regime applicable in the Port of Livorno, in Bull No. 12/14; AS1457 Release of the maritime state concession in the port of Livorno for multipurpose terminal dated 8 November 2017)

[2] See AS152 Measures for the revision and replacement of administrative concessions in Bull. No. 42/98