State aids in European ports

EU Commission has always paid great attention to the issue of possible State aids in  connection with long term concession contracts for the use of the port infrastructure.16 A recent decision of the EU Commission to open an in-depth investigation into alleged State aid by the Port of Antwerp in favour of PSA Antwerp and Antwerp Gateway is a good example. It gives us the opportunity to consider this matter in relation to the current Italian scenario. The investigation follows a complaint by competitors of the two beneficiaries.

The two beneficiaries are terminal operators. It is alleged that they did not meet the minimum tonnage requirements envisaged in their operative plans. It was on the basis of these targets that they were granted concession. According to Belgian law, the Antwerp Port Authority should have required the operators to pay the penalty provided for in the concession for the not meeting the minimal requirements.

The Port Authority (a public entity owned by the City of Antwerp) not only did not request the payment of the penalty, but also retroactively revised the operative plans, reducing the minimum tonnage requirements and therefore the very amount of the penalty that would be payable.

The Port Authority has therefore allowed PSA Antwerp and Antwerp Gateway (i) to pay lower compensation and (ii) to profit from an apparently unjustified improvement of the contractual conditions.

The EU Commission saw in this behaviour a potential form of State aid. The authors of this note agree with the approach taken by the Commission.

European case law has always interpreted Article 107 TFEU17 so as to consider the payment of a sum to a private party equivalent to the waiver of a payment owed by a private party to a public entity. Thus the foregoing of a payment or its unjustified reduction is a state aid.

As to the quantity of the aid the Commission will have to verify whether a private investor would have taken such initiative, under market conditions. It will be necessary to see the conclusion of the investigation to determine how the Commission will have quantified the aid. This case demonstrates the constant attention paid by the EU Commission to the issues connected with possible State aids in relation to concession contracts for the use of port infrastructure and it provides the opportunity to reflect on this matter looking at the current Italian scenario.

In our view this matter is crucial for Italy for two reasons:

1. In Italy there are provisions on State concessions similar to those under Belgian law. In particular, Article 18 of Law No. 84/1994 provides that, in order to be granted a conces- sion, a concession-holder shall submit an operative plan, supported by suitable guarantees, aimed at increasing the port’s traffic and productivity18. State-owned lands are given to terminal operators to achieve public interest goals, namely an increase in port traffic and productivity. Therefore, compliance with the targets set out is, in the legislator’s view, an essential part of the public interest19. In the event of a concession holder’s failure to comply with the above targets, where there are no extenuating circumstances, the Port Authority is obliged to revoke the concession under Article 18 of Law No. 84/1994. Therefore it appears evident that the results of the Commission’s investigation at issue could have a strong impact on the relationships between Italian terminal operators and the Port Authorities with whom they entered into concession agreements20.
2. With reference to Italian ports, we note that in the last few weeks certain Italian Port Authorities have opened several tender procedures21 for the awarding of concessions for the construction and operation of container terminals and all ancillary works, as well as the execution of the construction works themselves, the equipping and the operation of the terminals within the terms of Article 16 of the Italian Law no. 84/94.22

Bearing in mind that the relevant projects provide the use of significant state resources, the following question must be asked: do all such projects comply with EU state aid rules? On the basis of the approach taken by the Commission in Antwerp we have reason to doubt.

Any project in major European ports involving public funds are subject to the prior notification to the EU Commission according to Article 108 TFEU23. According to Article 107 TFEU, any State aid (i.e. granted through State’s resources) which distorts or threatens to distort competition by favouring certain undertakings is incompatible with the internal market.

A State measure is qualified as State aid in the following circumstances: (i) use of State resources, (ii) selective advantage to the beneficiary, and (iii) (potential) distorting effects on competition.

It is clear that Port Authorities must be considered an undertaking for the purposes of the article 107 TFEU24. Secondly, the so-called “market economy investor test” shall be  applicable to any public intervention both where the state is a co-funder or a lender. Favourable interest rates or payment grace periods are usually deemed as illegal if this distorts the competition in the same market. According to the test, any Member State must demonstrate that the State resources that will be granted to the Port Authorities and then made available to terminal operators would have been made available – on the same terms and conditions – by a private investor for the very same venture as those envisaged in the public tenders. In very practical terms, the Commission will have to establish if the public investments are suitable to offer a rate of return that could be acceptable to a private investor acting in normal market conditions. Therefore the financial assessment of the projects is crucial25. And it is here that the real problem lies. Today, in Italy, terminals are far from reaching their level of full utilisation26. In addition, further projects, other than those recently tendered, are already under constructionì27. This will further (and considerably) increase the overall capacity of Italian container terminals at a time when an increase in terminal traffic is not expected for many years. Would a private party invest in such a climate? In conclusion, nobody can exclude further EU investigations in this niche market. We will closely monitor any developments and update our readers.

16 The Italian case “Port of Augusta” is one of the most important examples (State aid SA 34940 (2012(N) – Port od Augusta – Italy).

17 Pursuant to Article 107 TFEU, “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in  any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”.

18 The concession-holders are required to secure the performance of the obligations arising from the concession granted by a deposit. It is therefore possible for the Port Authority to seek compensation in case of non-compliance with the targets set out in the operative plan.

19 Pursuant to Law No. 84/1994 (Article 18), the Port Authorities are statutorily required to carry out inspections on a yearly basis to verify

whether concession holders are compliant with the requirements set out in their concession and whether they are implementing their opera- tive plan.

20 As noted above, the non-enforcement of a guarantee or non-revocation of a concession granted, in case of default by a concession holder,

might well be considered as unlawful State aid in breach of EU law, should such behaviour involve sacrifice of public interest in favour of a defaulting private party.

21 Reference is made to the tender procedures issued by the following Port Authorities: Port Authority of Civitavecchia Fiumicino and Gaeta in

relation to the project “Darsena Energetica e Grandi Masse", the Port Authority of Livorno in relation to the project “Piattaforma Europa”, and Port Authority of Taranto in relation to the project “Molo Polisettoriale”.

22 Pursuant to Article 16 of the Italian Law no. 84/94, “Port operations include loading, unloading, transhipment, storage, general movement of goods and all other types of material, undertaken in the port area”.

23 Pursuant to Article 108, paragraph 3, TFEU “The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall with-

out delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision”.

24 Pursuant to Italian law, the Port Authorities are public entities appointed to ensure the maintenance and development of the public-owned

infrastructures in the Italian ports. However, when an entity is engaged in an economic activity - regardless of its legal status - it can be consid- ered as an undertaking for the purpose of the EU competition law. As a consequence, given that the above mentioned projects concern the construction of port infrastructures, it appears correct to consider that the in this case the Port Authorities carry out an economic activity and so they have to be qualified as undertakings for the purpose of the EU state aid rules.

25 The Commission applies the financial indicators provided by the Guide to the cost-benefit analysis of investments projects to ascertain the sustainability of the investments. The more relevant financial indicators are the Financial Net Present Value (FNPV) and the Financial Internal Rate of Return (FRR).

26 The percentage utilisation of the overall capacity of the Italian terminals amounts to about 57.5%.

27 Reference is made to the following projects: Calata Bettolo (Genoa) and the new multipurpose platform in Vado Ligure (Savona).