Commission code re-routes shipping funds

Date: 17/07/1997

By Chris Johnstone

SPANISH ferry company Trasmediterranea will be the subject of a state subsidy investigation in the next few weeks in a move which signals the European Commission's determination to clamp down on all aid which distorts competition in the sector.

Transport officials are poised to open a formal investigation into aid to the ferry company after allegations from rivals that it was paid over the odds for fulfilling public service commitments for the government. Trasmediterranea's competitors complained that the company was channelling the cash into routes which they had painfully established.

The investigation has been taken a step further after Spanish authorities refused to cooperate with the Commission's demands for details of the aid.

Trasmediterranea, a private ferry company, operates from Barcelona and Valencia to the Balearic Islands, from Cadiz to the Canary Islands, within the two island groups, and from Algeciras to Ceuta and Tangier.

The case once again demonstrates the Commission's willingness to get tough over subsidies to ferry companies - a stricter approach which was underlined by the introduction of a new code on aid to the shipping sector which came into effect at the start of this month.

As a broad guideline, countries will be banned under the new rules from paying out more cash to their fleets in total aid than they receive in taxable income. The Commission has asked all EU member states to provide details of 1996 taxable income from the sector as a starting point.

The new code includes a stipulation that all public service contracts must be tendered openly and the cash handed out must reflect the actual costs of the service plus a small operating profit. Such contracts should normally be limited to a maximum of five years.

The new rules have been framed with a view to the introduction of full competition for ferry and shipping companies from all EU countries except Greece by 1999.

Athens has been given an extra five years to comply.

The principle underlying the scheme is that more aid may be permitted in non-distorting sectors in order to preserve a lifeline to Europe's struggling industry, but other aid will be policed more tightly.

In particular, investment aid which will lead to extra capacity in the sector, such as aid to buy second-hand vessels or the conversion and modernisation of existing vessels - except for safety and environmental reasons - will only be granted in exceptional circumstances.

Similarly, regional aid for shipping companies will only be allowed when it is clear that the region concerned will gain long-term advantages from the cash spent.

Tax perks for the sector will be permitted without any harmonisation between the various options chosen by different governments, such as straight tax reductions for shipping companies and reimbursement of income tax paid by crews.

The new code should be greeted most enthusiastically by UK and Scandinavian ferry companies, which largely operate without aid.

British ferry firms protested loudly last year when the French government aired the idea of helping Brittany Ferries with three lines of action: cutting social charges for ferry crews, a wider plan of cash aid to help French companies upgrade their fleets in 1997 (and perhaps 1998) and a solidarity plan by ports to cut charges to ferry operators.

The French authorities said that cut-price port fees would apply to all ferry companies operating out of French ports regardless of their nationality.

The EU's shipping lobby, the European Community Shipowners' Association, has welcomed the new rules as a move likely to encourage governments to help their industries become more competitive.