3. PUBLIC FINANCES AND SEAPORTS
The ownership, organisation and administration of ports vary between
and within Member States, thus leading to great diversity in the
port sector. While accepting that it should be left to the Member
States to decide upon the ownership and organisation, a key issue
from a competition point of view is the financial flows between
the public authorities, the port operators and the users of the
port facilities and services.
Whilst in the past, ports and ports facilities were expected to
be paid for by the taxpayer, a discernible trend has developed
towards greater private participation in their financing. As a
result, financing of many port facilities is increasingly becoming
the responsibility of the private sector, while the port authorities
tend to restrict themselves more and more to their "landlord"
role and the financing and operation of those facilities which
are essential to the safe and efficient operation of the port
as a whole.
At the same time, more and more ports are seeking to develop a
more active commercial role, in cooperation with private partners
inside and outside the port. Indeed, some ports are operating
entirely on a commercial basis.
3.1. The Report on Public Financing and Charging Practices
in the Community Sea Port Sectors ("Inventory")
Under these circumstances, it is not surprising that the competition
between the ports, intensified by the completion of the internal
market, is influenced by the implementation of Member States'
port policies, varied as they are. This may or may not require
initiatives at Community level. However, before the debate could
be moved forward, it was felt, by all institutions alike, that
a satisfactory level of information be established with regard
to such key issues as the organisational and managerial structures
in Community ports, the financial flows from the public sector
to the various types of ports as well as charging practices in
these ports.
The Commission therefore gathered, with the help and active involvement
of Member States, information in the form of an inventory on public
financing and charging practices in Community ports. The Commission
committed itself to publish the findings; the inventory is found
in annex 2.
Although Member States' information was on the basis of previous
facts and data and considerable developments have since taken
place, it is nevertheless considered that the information remains
in substance valid and should be seen as a useful basis for further
work.
The inventory is self-explanatory, its details need not be repeated
here. Nevertheless it is appropriate to focus on some key conclusions.
- Despite the growing role of private involvement in port developments,
90% of the Community's maritime trade is estimated to be handled
in ports where investments and other policy and managerial decisions,
e.g. charging, are, to varying extents, dependent or, at least,
influenced by public bodies.
- Public investments in port projects represent between 5 and
10% of all Community transport infrastructure investments. Throughout
the Community the main emphasis of these investments varies: the
Baltic region shows important funding in start-up investments,
whilst the North Sea and Mediterranean regions register strong
investments in modernisation schemes.
- The transparency of public financial flows is unsatisfactory:
the accounting tools cannot normally deliver aggregate information
on public investments going into a port, nor can they retrace
satisfactorily flows and use of public monies within ports which
are, at the same time, engaged in public infrastructure management
and commercial activities.
- Charging and cost recovery systems vary considerably; cost
recovery is not always the main objective.
- The port services sector is developing and access possibilities
to the market are clearly increasing. However, procedural rules
which should ensure fair and open selection procedures where the
number of service providers is limited are unclear and unsatisfactory.
3.2. Transparency
The inventory has confirmed the view previously expressed by the
Commission and others that the current levels of transparency
in the ports sector are inadequate to ensure information on aggregated
public money flows going into the ports, where this is happening
under national schemes, and to retrace flows and use of public
monies within port entities, which are, at the same time, engaged
in both port management, including port infrastructure management,
and commercial activities within ports.
Readily available information on public money flows, from whatever
source, would help the Commission in dealing with state aid cases.
Under the Treaty rules, Member States are obliged to notify to
the Commission any aid they grant and, where, for whatever reason,
a state aid case has to be investigated, the Commission normally
requests information on public money flows which, under national
budget rules, should be readily available.
The principle of neutrality of Article 295 of the Treaty ensures
that the Treaty in no way prejudices the rules in Member States
governing the system of property ownership. Competition between
private and public operators, however, must not be distorted by
financial flows from public authorities which would allow the
public operator to reduce its own costs. Currently, due to the
complexity of the institutional and financial regimes for ports,
port management and maritime infrastructure in the Community,
the financial relationships between the public sector, the ports
and other undertakings working within them are often not clear.
Work on the inventory has shown that at least three major accounting
systems are being applied in ports.
First, port management may use an accounting system generally
comparable to those used in the private sector and relying on
generally accepted accounting principles of the respective Member
State and audits through independent bodies. This system is being
increasingly used, although its prime purpose is not to show up,
as a general rule, the influx, or not, of public monies but rather
as an operating tool for the port management and as a benchmarking
instrument for its shareholders.
The second system can be described as the public accounting or
'budget' approach. It is intended to record the use of public
monies.
The third type of accounting system is employed in certain ports
which are part of a wider public body (e.g. at municipal level)
and, as a consequence, do not maintain separate accounts. Expenditures
such as investments are executed under the authority of the public
body and are recorded as an integral part of the public accounting
system of the municipality. This approach, termed as 'bundled'
accounts, is designed to monitor and control the financial affairs
of the wider public body as a whole.
When analysing these three key accounting models, it is clear
that none is in a position, by its very nature, to provide transparent
and clear information on the public money flows into ports and
the use made of them by the port management in the accomplishment
of its many tasks. This is not surprising because the systems
used were simply not devised to record the information now required
and to distinguish between commercial activities and public port
and infrastructure management. Indeed, the public budget accounting
system practised by certain municipal ports with its inherent
principle of universality, i.e. the non-dedication of expenses
and income, precludes a clear identification of money flows for
specific activities.
The consultations following the publication of the Green Paper
have pointed to this unsatisfactory situation. It gives rise to
suspicion and recrimination between ports, be it justified or
not. It does not allow satisfactory control, where warranted,
of state aid rules by the Commission and generally risks to impede
competition at a time when Member States and port authorities
introduce more and more private initiative, competition and capital
into ports.
The Commission believes that application of "Commission Directive
2000/52/EC on the transparency of financial relations between
Member States and public undertakings as well as on financial
transparency within certain undertakings" (the "Transparency
Directive") combined with a legal requirement to keep separate
accounts to be introduced as part of the proposed "Directive
on market access to port services" will lead to considerable
improvements.
3.2.1. Transparency Directive.
The Transparency Directive [article 1(1)] acknowledges that public
undertakings continue to play an important role in the economies
of the Member States, but requires that the financial relations
between public authorities and public undertakings are transparent
so as to help ensure fair competition between public undertakings
and between public and private undertakings and an effective application
of the Treaty's competition rules. The appropriate level of transparency
should be achieved if the following emerge clearly:
- public funds made available directly by public authorities
to the public undertakings concerned;
- public funds made available by public authorities through
the intermediary of public undertakings or financial institutions;
- the use to which these public funds are actually put.
and shall apply in particular to the following aspects of financial
relations between public authorities and public undertakings:
(a) the setting-off of operating losses;
(b) the provision of capital;
(c) non-refundable grants, or loans on privileged terms;
(d) the granting of financial advantages by foregoing profits
or the recovery of sums due;
(e) the foregoing of a normal return on public funds used;
(f) compensation for financial burdens imposed by the public authorities.
These rules apply to publicly owned ports. The legal structure
of the port is irrelevant. Indeed, a public port does not even
have to have a legal personality distinct from that of the state
because otherwise Member States could decide whether or not a
port is covered by the Transparency Directive by choosing a specific
legal status or by not granting a port a legal status at all.
It is observed in this regard that the fact that a body carrying
out economic activities of an industrial or commercial nature
is integrated into the state administration and does not have
legal personality separate therefrom does not prevent the existence
of financial relations between the state and that body. Through
the mechanism of budgetary appropriations, the state has by definition
the power to influence the economic management of the undertaking,
permitting it to grant compensation for operating losses and to
make new funds available to the undertaking. It may therefore
permit that undertaking to carry out its activities independently
of the rules of normal commercial management, which is precisely
the situation which the Directive seeks to make transparent.
The Transparency Directive furthermore acknowledges [article 1(2)]
that in certain sectors Member States often grant special or exclusive
rights to particular undertakings, or make payments or give some
other kind of compensation to particular undertakings entrusted
with the operation of services of general economic interest which
are common occurrences in the Community's ports sector. These
undertakings are often also in competition with other undertakings
and may be public, private or of a mixed public-private nature.
The appropriate level of transparency should be achieved if the
following emerge clearly:
- the costs and revenues associated with different activities;
- full details of the methods by which costs and revenues are
assigned or allocated to different activities.
and if the following is carried out:
(a) the internal accounts corresponding to different activities
are separate;
(b) all costs and revenues are correctly assigned or allocated
on the basis of consistently applied and objectively justifiable
cost accounting principles;
(c) the cost accounting principles according to which separate
accounts are maintained are clearly established.
As with Article (1), the obligations apply to undertakings irrespective
of their legal structure or whether or not the activities in question
are carried out by a distinct body.
The Transparency Directive does not apply without exceptions.
It is of particular relevance for the ports sector that its obligations
only apply to undertakings whose total annual net turnover for
each of the last two years exceeded 40 million. In cases
where the compensation for the fulfilment of services of general
economic interest has been fixed for an appropriate period following
an open, transparent and non-discriminatory procedure the Transparency
Directive does not require such undertakings to maintain separate
accounts.
3.2.2. Proposed Directive concerning market access to port
services.
The Commission proposes (in Article 12) that where the managing
body of a port provides port services, it must separate the accounts
of its ports services activities from the accounts of its other
activities, in accordance with current commercial practice and
generally recognised accounting principles. This should ensure
that:
(a) the internal accounts corresponding to different activities
are separate;
(b) all costs and revenues are correctly assigned or allocated
on the basis of consistently applied and objectively justifiable
cost accounting principles;
(c) the cost accounting principles according to which separate
accounts are maintained are clearly established.
The auditor's report on the annual accounts must indicate the
existence or, of course, non-existence, of financial flows between
port services activity of the managing body of a port and its
other activities.
The same rules should apply where, in application of the rules
of the proposed Directive, the managing body of a port is the
sole supplier of a specific port service.
The Commission has considered whether the level of transparency
should be enhanced either by an appropriate modification of the
'Transparency Directive' or by proposing a regulation similar
to Regulation 1107/70 on the granting of aid to transport by rail,
road and inland waterway, which contains certain information requirements.
An appropriate modification of the Transparency Directive would
have been, and remains, a feasible option because prior modifications
of it were made in order to take account of sectoral specificities,
and there is no reason why a similar approach could not be made
for the ports sector.
Equally, a regulation comparable to Regulation 1107/70 with appropriate
transparency rules remains an option, all the more so since ports
are, contrary to the land transport modes, not covered by specific
legislation on aid.
However, the Commission believes that a combination of the application
of the modified Transparency Directive and the introduction of
accounting requirements in the port services sector will significantly
increase the transparency levels in ports. Under these circumstances
it has been decided not to propose a change of Directive 80/723/EEC
(as amended). This option, and the other one described above,
remain and recourse may be had to them if the levels of transparency
in the sector are not enhanced as a result of the above measures.
3.3. State aids to ports .
The debate following the publication of the Green Paper and work
on the inventory have confirmed that the financing of ports and
maritime infrastructure in the Community continues to vary considerably,
reflecting the considerable differences in the way in which their
ownership and organisation has been approached.
The Commission has been requested to issue guidelines on port
state aids for the construction of port infrastructures.
The key reason given to support this request is that in other
sectors the Commission has issued a series of guidelines dealing
essentially with the conditions under which state aid may be authorised.
Equally, certain categories of aid exist which the Commission
has said it will authorise and which, subject to exclusions, may
well apply in the ports sector as well. The existence of guidelines
in other sectors is not a sufficient reason for issuing formal
Commission guidelines on state aid in ports, all the more since
stakeholders in favour of state aid guidelines explicitly oppose
state aid to ports.
On the other hand the Commission is fully aware that guidance
and clarification of existing rules would be of help both to Member
States, the port authorities and, indeed, the Commission itself.
However, such clarification, apart from relying on the Treaty
rules, has to be built up from case law. With regard to ports
there is little case law. And as clarifications of the Treaty
rules should not be built up from theoretical situations whilst
reality is different and not always transparent, any attempt on
clarification must be qualified, for the time being, as a theoretical
exercise: the Commission will continue to carry out case-by-case
examinations where the facts and specificities of each case alone
determine the outcome.
State aid is defined by article 87(1) of the Treaty as "aid
granted by a Member State or through State resources in any form
whatsoever".
State aid can therefore take any one of a number of forms, e.g.
grants; loans at less than a commercial rate of interest and guarantees;
total or partial exemption from charges, taxes or social contributions;
fiscal advantages resulting from accelerated or enhanced depreciation
schemes; contributions to operating or training costs; benefits
in kind such as free provision of services.
Article 87(1) further stipulates that only selective aid, i.e.
aid given to specific undertakings or sectors of undertakings
constitutes state aid; genuinely non-selective and non-discriminatory
measures are outside the scope of state aid.
Any selective state aid which distorts or threatens to distort
competition shall, insofar as it affects trade between Member
States, be incompatible with the common market.
Article 87(2) lists three categories for aid which, as a matter
of law, are considered as being compatible with the common market.
Article 87(3) lists five categories which, on examination by the
Commission, may be found to be compatible with the common market.
Not only private undertakings are subject to the state aid rules
of the Treaty, but also public undertakings and undertakings to
which Member States grant special or exclusive rights (article
86(1)) or which Member States entrust with the operation of services
of general economic interest (article 86(2)).
Article 88 of the Treaty obliges Member States to notify any plans
to grant or alter aid to the Commission to obtain approval.
Although in the port sector interested parties have come to distinguish
between investments in port infrastructure, superstructure, mobile
assets and operational services, this distinction cannot replace
the key criterion set out by the Treaty for the definition of
state aid, namely that of selectivity under Article 87(1). This
criterion remains the only benchmark for deciding whether a concrete
investment measure, no matter whether it is categorised as port
infrastructure, superstructure, mobile asset or operational service,
constitutes an aid or not.
As regards infrastructure a subdivision into 'public (general)'
and 'user-specific' infrastructure is seen as helpful by interested
parties.
'Public (general)' infrastructure is open to all users on a non-discriminatory
basis. It includes maritime access and maintenance (e.g. dikes,
breakwaters, locks and other high water protection measures; navigable
channels, including dredging and ice-breaking navigation aids,
lights, buoys, beacons; floating pontoon ramps in tidal areas);
public land transport facilities within the port area, short connecting
links to the national transport networks or TENs; and infrastructure
for utilities up to the terminal site. Investments in such infrastructure
are normally considered by the Commission as general measures,
being expenditures incurred by the state in the framework of its
responsibilities for planning and developing a transport system
in the interests of the general public provided the infrastructure
is de jure and de facto open to all users, actual or potential,
in accordance with Community legislation. However, the characteristics
of a specific case may show that such infrastructure benefits
a specific undertaking and may therefore warrant the conclusion
of aid despite its prima facie appearance as public infrastructure..
'User-specific' infrastructure includes yards, jetties, pipes
and cables for utilities on the terminal sites of a port; works
that make the terminal site "ripe for construction"
(i.e. rough levelling and - if necessary - the demolition of existing
buildings and structures). In general, if public authorities prepare
land in their possession for development and sell it or lease
it at market rates (following the kind of procedures indicated
in the land sales communication) the Commission would not regard
such investments in infrastructure as state aid. This would be
different if, for example, the development were done with a particular
end-user in mind.
Two particular investment areas, namely docks and quay walls do
not easily fit into either of the above-mentioned groups. Indeed,
whereas for each of the above examples situations could be envisaged
where the general conclusions would not apply , the specificities
of any development and the variety of options make it impossible
even to draw conclusions of a very general nature for works concerning
docks and quay walls. It is therefore clear that the factual situation,
potential and/or concrete beneficiaries, size and measurements
of the installations and their actual and/or potential users will
play a key role in any assessment by Member States and/or the
Commission.
Investments in superstructures may include all types of buildings
(warehouses, workshops, offices) and all types of fixed or semi-mobile
equipment such as cranes and ramps. Such investments normally
favour certain undertakings and thus constitute aid which may,
however, where the conditions are fulfilled, benefit from the
exemptions provided for in the Treaty.
It has been claimed that an investment in superstructure should
not be considered a state aid where there will be full cost recovery
from the user.
However, the Commission cannot accept such a general conclusion.
An undertaking which is given the money for an investment in infrastructure
or equipment or financed on favourable terms, or provided with
the assets themselves for use by itself or its clients, is certainly
advantaged in a number of ways. Its balance sheet will be improved
(net assets, debt/equity) as will its profit and loss account
and flow of funds by comparison with a port undertaking which
has to finance the investment from its own resources or to borrow.
Cost recovery from users does not remove these advantages which
in themselves constitute a distortion of competition, unless the
choice of the beneficiary and the terms on which it obtained the
use of the facilities were reached as a result of an open and
non-discriminatory procedure. However, in particular cases where
the exemptions of the Treaty apply, such distortion may be considered
compatible with the Treaty.
Public support to investments in mobile assets and operational
services, e.g. those of individual port service providers, generally
favours certain undertakings and it is difficult to foresee a
situation where this is not the case.
Such support would be a state aid, again with the possible application
of the exemption rules of the Treaty.
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