EFTA SURVEILLANCE AUTHORITY DECISION

No 328/09/COL

of 15 July 2009

on the Icelandic Harbour Acts (Iceland)

THE EFTA SURVEILLANCE AUTHORITY (1),

HAVING REGARD to the Agreement on the European Economic Area (2), in particular to Articles 61 to 63 thereof and Protocol 26 thereto,

HAVING REGARD to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (3), in particular to Article 24 thereof,

HAVING REGARD to Article 1(2) of Part I and Articles 4(4), 6, 7(2) and 7(5) of Part II of Protocol 3 to the Surveillance and Court Agreement (4),

HAVING REGARD to the Authority‘檚 Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement (5), and in particular the Chapter on state aid to shipbuilding and the Chapter on National Regional Aid,

HAVING REGARD to the Authority‘檚 Decision No 195/04/COL of 14 July 2004 on the implementing provisions referred to under Article 27 of Part II of Protocol 3 to the Surveillance and Court Agreement (6),

HAVING CALLED on interested parties to submit their comments pursuant to those provisions (7) and having regard to their comments,

Whereas:

I. FACTS

1. Procedure

By letter of 7 May 2007 (Event No 420581), the Icelandic authorities notified, pursuant to Article 1(3) of Part I of Protocol 3 to the Surveillance and Court Agreement, amendments to the Icelandic Harbour Acts which (among other matters) provided for support for quay installations and the use of pilot vessels, and damage compensation for ship lift/hoist facilities, quay installations and pilot vessels. The support is provided through a Harbour Improvement Fund created in 1984 (‘渢he Fund‘�.

After various exchanges of correspondence (8), by letter dated 12 December 2007 the Authority informed the Icelandic authorities that it had decided to initiate the procedure laid down in Article 1(2) of Part I of Protocol 3 in respect of these measures.

The Authority‘檚 Decision No 658/07/COL to initiate the procedure was published in the Official Journal of the European Union and the EEA Supplement to it (9) and through that process the Authority called on interested parties to submit their comments.

The Icelandic authorities responded by letter dated 15 February 2008 (Event No 465549).

The Authority received one comment from an interested party on 23 April 2008 (Event No 476888). By letter dated 20 May 2008 (Event No 477796), the Authority forwarded this to the Icelandic authorities, who were given the opportunity to respond. No formal (written) response to that correspondence was received.

2. Description of the proposed measure

The Icelandic Harbour Act framework legislation ‘�Harbour Act No 61/2003 (as amended by Act No 11/2006 and Act No 28/2007) allows for (10) the funding of municipality-owned Icelandic harbour infrastructure and facilities, and to compensate for damage to them.

For a detailed explanation of the relevant legislative provisions relating to Icelandic harbours, reference is made to the Authority‘檚 Decision No 658/07/COL to open the formal procedure of 12 December 2007. The Authority will hereinafter focus on the specific provisions that caused concern and which were the subject of the formal investigation.

The specific provisions are as follows:

(a) Pilot vessels: A provision under Article 24(2)(a) of the Harbour Act 2003 (‘渢he 2003 Act‘� under which the ‘渋nitial costs for pilot vessels where conditions in and near the harbour require such safety equipment‘�may be met from the Fund. The fund may cover up to 75 % of these initial costs under this provision.

(b) Quay installations: Provisions under Article 24(2)(b) and (c) of the 2003 Act relating to the use of the Fund to pay for ‘渜uay installations‘� Funding may be provided up to 90 % of the cost of the quay installations under sub-paragraph (b) and up to 40 % under sub-paragraph (c).

(c) Damage compensation: A provision under Article 26(3) of the 2003 Act under which the harbours eligible for support from the Fund under Article 24 of the 2003 Act may claim compensation for damages caused to their operational facilities. There is no limit on the amount of compensation that may be provided.

(d) Ship hoist/lift facilities: A provision inserted into Article 26(3) of the 2003 Act by a 2007 amendment act, which is intended to extend the scope of the damage that harbour operators may receive compensation for so as to include damage to ship hoist/lift facilities. Again, the amount of compensation is not limited.

2.1. Grounds for initiating the procedure

In Decision No 658/07/COL, the Authority expressed doubts as to whether support to the pilot vessels could be considered a general measure and valid expenditure incurred by the state in developing a maritime transport system in the interest of the general public. It could not exclude that support to pilot vessels could be considered selective as public support to investments in mobile assets and operational services generally favours certain undertakings.

Similarly, on the basis of the information available, the Authority could not draw any conclusion as to whether support for quay installations could qualify as general measure.

Finally, the Authority preliminarily considered that damage compensation could constitute state aid if available in respect of installations that are not general measures.

The Authority also expressed doubts that the measures in question could be considered compatible with the EEA Agreement. This was on the basis (most notably) that the derogation in Article 61(2)(b) appeared not to be applicable given the extension of the damage compensation beyond making good damage caused by natural disasters, and due to the apparent inapplicability of either the Regional aid or Shipbuilding Chapters of the State Aid Guidelines. The Authority also noted that support from the Fund was not available to privately owned harbours, and that a valid justification for this differentiation was not apparent.

3. Comments from third parties

One comment was received from a third party in a letter addressed to the Authority dated 23 April 2008. St谩lsmi冒jan, a private harbour operator based in Reykjavik, agreed with the initial views expressed by the Authority in its opening decision.

4. Comments by the Icelandic authorities

In a letter dated 15 February 2008, the Icelandic authorities argued first of all that despite changes to the legislation, interim provisions within the 2003 Act meant that the provisions relating to support from the Fund ‘渕ay be postponed‘�and that the legal position set out in the 1994 Harbour Act was to be maintained until the end of 2008. The Authority was also informed that this interim provision was extended by Act No 145/2007 so that it now applies until the end of 2010.

It is also the Icelandic authorities‘�view that ‘渄ocking facilities‘�(‘渉afnarmannvirki‘� ‘�a term said to incorporate the measures subject to investigation ‘�are regarded as public infrastructure in Iceland, serving a public purpose, with open access and forming an integral part of a harbour.

More specifically in respect of the measures which are the subject of the formal investigation, the Icelandic authorities argued that pilot vessels are an essential part of the activity and infrastructure of a harbour where conditions require. It is stated that their use is strictly for safety purposes (including in emergency situations), and is in some circumstances obligatory by law. The authorities also stress that their use is a burden borne by harbours due to their cost. In so far as quay installations are concerned, the Icelandic authorities again argue that they are part of the general infrastructure of a harbour, referring to them as ‘渂erthing constructions‘�

The Icelandic authorities also argue that the measures do not distort competition or affect trade between EEA states. The basis for this argument is geographical, with reference made to the travel time (of 47 hours) between Iceland and mainland Europe and to information provided by the Federation of Industries in Iceland that it is ‘渇or the most part unknown for foreign vessels [to] come to Iceland for repair work‘� Whilst it is acknowledged by the Icelandic authorities that there is international competition in ship repair (and therefore the use of ship lifts and hoists and dry docks), it is argued that no such competition exists in Iceland.

II. ASSESSMENT

1. The presence of state aid

State aid within the meaning of Article 61(1) EEA Agreement

Article 61(1) of the EEA Agreement reads as follows:

1.1. Presence of state resources

The aid measure must be granted by the State or through state resources.

It is envisaged that each of the measures provide support to the harbours through the Fund, which is allocated resources from the Icelandic Treasury. The budgetary allocation of the Treasury constitutes state resources within the meaning of Article 61(1) of the EEA Agreement. The classification as state resources is not altered by the fact that the state‘檚 money is channelled through the Fund. Article 26(l) of the 2003 Act provides that the Fund is owned by the State and that the Harbour Council (hafnar谩冒) acts as its board of directors on behalf of the Minister of Transport. The Harbour Council is appointed by the Minister of Transport pursuant to Article 4 of Act No 7/1996 on the Maritime Agency (l枚g um Siglingastofnun 脥slands). The Fund is therefore a public law body. Part of the financing of the Fund comes directly from the State budget as decided by Parliament. According to Article 26(3) of the 2003 Act, the Harbour Council allocates the income of the Fund following recommendations from the Maritime Agency and subject to the approval of the Minister of Transport, as further laid down in sub-paragraphs 1 to 3. The Maritime Agency is responsible for the administration of the Fund according to paragraph 4 of that Article. The Fund also carries out public tasks as laid down in the 2003 Act.

The Authority concludes therefore that support granted by the Fund is imputable to the State and constitutes state resources within the meaning of Article 61(l) of the EEA Agreement.

1.2. Favouring certain undertakings or the production of certain goods

The aid measure must be selective in that it favours ‘渃ertain undertakings or the production of certain goods‘�

The issue in this context is whether the Icelandic municipalities, as recipients of state support, are undertakings engaged in economic activities or whether they act as a public authority. As referred to in the European Commission‘檚 decision on ‘淔inancial Support for infrastructure works in Flemish ports‘�a href="#ntr11-L_2011219EN.01000701-E0011" id="ntc11-L_2011219EN.01000701-E0011" shape="rect"> (11)