Tick tock, tick tock... time to approve Italian Annual Competition Law 2021

We get back onto a topic which is now widely discussed and which we already had the chance to address in our previous issues[1]: Italian Annual Competition Law.

Italian Annual Competition Law for the year 2021 recorded a slight setback in its approval, due to the need to prioritise emergency legislation on the spread of COVID-19.

This, however, allowed those working in the sector to express their opinions on the draft law (“Competition Bill”) that is still being discussed at the Italian Senate and to debate the most relevant issues in more detail.

Focusing only on the most relevant port aspects of the Competition Bill[2], the following aspects are noticeable in the draft under discussion:

i) removal of any reference to a regulation on concessions, with the consequence that the determination of the criteria for the granting of concessions is directly entrusted to individual Port System Authorities;

ii) failure to introduce any objective criteria for determining concession fees;

iii) provision for compensation by the newcomer to the incumbent for the investments made;

iv) applicability of the provision of Article 18, paragraph 7, of Law No. 84/1994 to minor ports only;

v) failure to provide for certain long-awaited and hoped-for measures in the field of (a) financing of concessionaires’ investments and (b) enhancement of the procedures for verification of compliance with business plans.

Let us now examine the individual points in more detail.

• Removal of any reference to a regulation on concessions, with the consequence that the determination of the criteria for the granting of concessions is directly entrusted to individual Port System Authorities.

On the one hand, such removal reflects the factual situation and it seems as if the legislator has faced up to the facts. Since thirty years have passed from the approval of Law No. 84/1994 without the relevant regulation for granting concessions having been issued, Port Authorities first, and then Port System Authorities, have over the years adapted to such regulatory gap and identified their own rules and/or practices for granting concessions.

On the other hand, this was an excellent opportunity to finally determine some objective parameters shared by all Port System Authorities.

Adopting a regulation would have allowed aspiring concessionaires to “play by the same rules” in all Italian ports, thus avoiding competitive distortions. To date, however, since there is no regulation laying down criteria which are generally valid, each Port System Authority is free to adopt its own rules for identifying the “most worthy” competitor. Unfortunately, such rules do not always identify certain, clear, transparent and non-discriminatory criteria.

• Failure to introduce any objective criteria for determining concession fees.

Along with the removal of the regulation for the granting of concessions, no predetermined, objective and transparent criteria for determining concession fees have been set out.

Such task is once again delegated to individual Port System Authorities. Such approach therefore perpetuates the current situation in national ports, where the concession fee was, is and - at this stage realistically - will remain an element of potential distortion of competition, both in the individual port and among the different national ports.

The current situation - even if in certain cases clearly distorting competition - is, furthermore, crystallised by the provision of Article 18, paragraph 2, of Law No. 84/1994 (in the version proposed by the Competition Bill), which reads: “The fees established by Port System Authorities for concessions already been granted as of the date of entry into force of this law, shall remain valid until the concession expires”.

As already noted with regard to the preceding point, we believe that it is necessary to provide for “rules of the game that are the same for everyone”, including concerning concession fees, which are equal to all national ports, so as to prevent abuse and/or distortion of competition.

• Provision for compensation by the newcomer to the incumbent for the investments made.

Article 18, paragraph 1, of Law No. 84/1994 (in the version proposed by the Competition Bill) reads: “Notices shall also set out the terms for the expiry of the concession, including in relation to any compensation payable to the outgoing concessionaire”.

The provision for such compensation is fully in line with the discipline provided for at the time by the Transport Regulation Authority by Resolution No. 57/2018.

Like in the discipline drafted by the Transport Regulation Authority, the subject of such “indemnity” is still unclear. Does the indemnity cover infrastructural investments and/or also investments for superstructures and equipment?

Furthermore, the limits of such indemnity are unclear: should it only compensate for the unamortised part of the investments or should it compensate also for something else?

In our opinion, such provision remains very generic and ripe for abuse. It would have been appropriate to provide for predetermined, objective and transparent criteria for determining the indemnity.

• Applicability of the provision of Article 18, paragraph 7, of Law No. 84/1994 to minor ports only.

The Competition Bill accepts the proposal of the Italian Competition Authority (“AGCM”)^[3] that “in a perspective of development and growth of the port sector, paragraph 7 of Article 18 of Law No. 84 of 28 January 1994 should be reworded, preventing cumulation of concessions for the same activity only by minor ports, where situations of market power are more likely to be formed, and/or for those types of activity where competitive dynamics are limited to the single port”.

As a matter of fact, in our opinion, (even recent) experience shows that the Italian Competition Authority’s statement does not reflect the actual situation. Regardless of the size of a port, it is clear that the space within a single port of call is limited, as is the number of operators who can have access it. Abolishing the prohibition of double concessions would therefore risk creating dominant positions which might lead to abuses, both in minor ports and in ports with Port System Authorities.

It should also be recalled that, over the years, Article 18, paragraph 7, of Law No. 84/1994 has always been interpreted in such a way as to ensure that Port System Authorities may act “in compliance with the principles of competition, freedom of establishment, guarantee of the development, enhancement of entrepreneurial activities and investment protection”^[4].

Furthermore, this is a rule which - as we have highlighted -, according to case law^[5], could be “managed” by Port System Authorities with a view to ensuring competition within a port (given that competition is precisely the “asset” that such rule intends to guarantee) but in the context of a scenario always aiming at the “increase of the traffic and productivity of the port”, as provided for by Article18, paragraph 6, of the Law No. 84/1994.

• Failure to provide for certain long-awaited and hoped-for measures in the field of (a) financing of concessionaires’ investments and (b) enhancement of the procedures for verification of compliance with business plans.

By the looks of it, the chance has once again been blown, since neither (a) the long-awaited measures concerning the financing and/or bankability of concessionaires’ investments nor (b) any procedures for monitoring compliance with business plans have been implemented.

As regards financing, those working in the sector have repeatedly stressed the difficulty of obtaining financing from lenders because of unclear rules governing forfeiture (e.g. forfeiture for misuse of the concession[6]).

The Competition Bill could have been the right opportunity to better regulate the forfeiture procedure, so as to reassure both lenders and concessionaires themselves, removing the absolute discretion of the Port System Authority in making such decision.

Concerning procedures, the Italian Competition Authority had already suggested the actual implementation of the procedures aimed at verifying the fulfilment of the commitments undertaken (first and foremost through their own business plans) by the concessionaires at the time of the application and granting of concessions. Although already provided for by Article 18, paragraph 8, of Law No. 84/1994, the assessments concerning actual compliance with business plans are not always carried out.

It cannot be denied that the verification of the actual fulfilment - by the concessionaire - of its commitments is crucial to detect any inefficiencies in using State-owned areas. Indeed, considering the limited number of State-owned areas, it is in the general public interest that concessions be entrusted to subjects capable of ensuring their profitable and efficient use.

The Competition Bill could have provided new impetus to this important issue. Furthermore, it would have been appropriate to emphasise how, in accordance with the business plan, it is important to verify not so much the implementation of investments - which are certainly relevant and preliminary to achieving traffic objectives - but the actual attraction and development of traffic. It is traffic indeed which generates port taxes and anchorage fese, thus supporting, along with the payment of the State fee, the Port System Authorities and the overall transport system.

All the above is said, of course, bearing in mind that concessions are in any event agreements, whereby both parties are obliged to respect their commitments (therefore, not only concessionaires, but also granting authorities, e.g. in terms of carrying out the works provided for by the concession, on which any concessionaire may have legitimately relied when drafting its business plan).

*.*.*.*

In February there were several Senate hearings on the Competition Bill attended by plenty of representatives of maritime and port players. Some of the participants expressed the same concerns and worries set out above. We do hope that, in approving the competition law, the Parliament will take into account the views of the various players in the maritime and port sector.

We will go back and analyse the final version of the Annual Competition Law once it is approved, so as to assess its effect on the maritime and port sector.

This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Alberto Torrazza and Ekaterina Aksenova.

[1] See Shipping and Transport Bulletin of April-June 2021.

[2] Article 3 of the Competition Bill provides for the replacement of Article 18 of Law 84/1994 as follows:

“Article 3. (Concession of State-owned port areas) - 1. Article 18 of Law No. n. 84 of 28 January 1994, is replaced by the following article:  

Art. 18. - (Concession of areas and quays)

1. The Port System Authority and, where not established, the Maritime Authority shall grant under concession the state-owned areas and quays included in the port area to the companies mentioned in Article 16, paragraph 3, in order to carry out port operations, without prejudice to the use of buildings by public authorities for performance of functions related to maritime and port activities. Equally subject to concession by the Port System Authority, and where not established, by the Maritime Authority, shall be the construction and management of works related to maritime and port activities located in sea waters outside breakwaters, likewise to be deemed port area for such purpose, provided that they are affected by port traffic and the provision of port services, including for construction of facilities for loading and unloading operations in accordance with the functions of the port. Concessions are granted, subject to prior determination of the relevant fees, also in proportion to the amount of the relevant port traffic, based on public procedures, started also at the request of the party concerned, by publication of a notice, in compliance with the principles of transparency, impartiality and proportionality, thus ensuring conditions of actual competition. Notices shall define in a clear, transparent, proportionate and non-discriminatory manner the eligibility requirements for participation and the criteria for selecting applications as well as the maximum duration of concessions. Notices shall also set out the terms for the expiry of the concession, including in relation to any compensation payable to the outgoing concessionaire. The minimum time limit for submission of the applications shall be 30 days from the date of publication of the notice.
2. The fees established by Port System Authorities for concessions already granted as of the date of entry into force of this law shall remain valid until the concession expires.
3. The reserved use of functional operational areas for the performance port operations by other companies without a concession shall comply with the principles of transparency, fairness and equal treatment.
4. Concessions for the installation and management of warehouses and plants referred to in Article 52 of the Navigation Code and the works necessary for their supply, declared strategic pursuant to Law 239 of 23 August 2004, shall have a term of at least ten years.
5. Concessions may also cover the realisation of infrastructural works.
6. For the purposes of granting the concession referred to in paragraph 1, the participants in the concession procedure shall be required to: a) provide, at the time of the application, for a business plan, supported by suitable guarantees, including sureties, aimed at increasing the port’s traffic and productivity; b) have adequate technical and organisational equipment, suitable also from a safety point of view for complying with the requirements of a continuous and integrated production and operating cycle on their own account and on behalf of third parties; c) provide for a workforce in accordance with the business plan referred to in a).
7. In each port, the undertaking holding a concession for a State-owned area shall directly carry out the activity for which the concession was granted and shall not at the same time be the concessionaire of another State-owned area in the same port, unless the activity for which a new concession is applied for is different from the one of the existing concessions in the same State-owned area, and shall not carry out port activities other than those for which the concession was granted. The non-cumulation mentioned in the first sentence shall not apply to ports of international and national economic relevance, identified pursuant to Article 4, and in such case exchange of labour shall be forbidden between the different State-owned areas granted under concession to the same undertaking or to subjects in any event referrable to the same company. On a reasoned request by the concessionaire undertaking, the granting Authority may allow other port undertakings, authorised under Article 16, to carry out certain activities included in the operational cycle.
8. The Port System Authority or, where not established, the Maritime Authority, shall carry out yearly assessments aimed at verifying whether the concessionaire still meets the requirements met at the time when the concession was granted, and is implementing the investments provided for by the business plan referred to in paragraph 6 a).
9. In the event that the concessionaire fails to comply with the obligations undertaken or fails to achieve the objectives set out in the business plan referred to in paragraph 6, a), without justified objective reasons, the Port System Authority or, where not established, the Maritime Authority shall declare the forfeiture of the concession agreement.
10. The provisions of this article shall also apply to warehouses and facilities for oil and liquid chemicals as well as for other similar products, located within the port”.

[3]https://www.agcm.it/dotcmsCustom/getDominoAttach?urlStr=192.168.14.10:8080/C12563290035806C/0/914911A1FF8A4336C12586A1004C2060/$File/AS1730.pdf

[4] See Regional Administrative Court (TAR) of Liguria, Second Division, 24 May 2012, No. 747.

[5] See Order of the Court of Genoa of 18 September 2009.

[6] Article 47 of the Navigation Code provides that “[the] Administration may declare forfeiture of a concessionaire: [...omissis...] b) for non-continuous use during the period set for this purpose in the concession deed, or for misuse; [...omissis...]"