TABLE OF CONTENTS

1. Procedure 9

2. Background and description of the measures subject to investigation 10

2.1. General framework 10

2.1.1. The initial Conventions 10

2.1.2. The prolongation of the initial Conventions 12

2.1.3. The privatisation of Toremar and the conclusion of the new service contract 13

2.2. Measures in scope of the 2011 and 2012 Decisions 13

2.3. Detailed description of the measures subject to the present Decision 13

2.3.1. The prolongation of the initial Convention between Toremar and Italy 13

2.3.1.1. The public service obligations 13

2.3.1.2. Budget and duration 14

2.3.2. Toremar’s privatisation 16

2.3.2.1. The sale procedure and final award 17

2.3.2.2. The sale contract 17

2.3.2.3. Proceedings at national level 18

2.3.3. The new service contract between the Region of Tuscany and Moby/Toremar 19

2.3.3.1. The beneficiary 19

2.3.3.2. The routes 19

2.3.3.3. Duration 19

2.3.3.4. The public service obligations 19

2.3.3.5. The compensation provisions and final award 20

2.3.4. The berthing priority 20

2.3.5. The measures laid down by the 2010 Law 21

2.4. Infringement procedure No 2007/4609 21

3. Grounds for initiating and extending the procedure 23

3.1. The prolongation of the initial Convention between Toremar and Italy 23

3.1.1. Observance of Altmark and existence of aid 23

3.1.2. Compatibility 23

3.2. Toremar’s privatisation 24

3.3. The new service contract between the Region of Tuscany and Moby/Toremar 24

3.3.1. Observance of Altmark and existence of aid 24

3.3.2. Compatibility 25

3.4. The berthing priority 25

3.5. The measures laid down by the 2010 Law 25

4. Comments from Italy 25

4.1. On the public service obligations and the competitive environment 25

4.2. On the privatisation of Toremar 26

4.2.1. On the sale price of Toremar 26

4.2.2. On the transparent and non-discriminatory character of the procedure 26

4.3. On the compliance of the prolongation of the initial Convention and of the new public service contract with the Altmark conditions 26

4.4. On the 9,95 % rate of return used for 2010 and on the 6,5 % risk premium laid down in the CIPE Directive as of 2010 27

4.5. On the berthing priority 27

4.6. On the measures laid down by the 2010 Law 28

4.7. On the compliance of the prolongation of the initial Convention and of the new public service contract with the 2011 SGEI Decision 28

4.8. On the compliance of the initial Convention and of the new public service contract with the 2011 SGEI Framework 29

5. Comments from Moby/Toremar 29

5.1. On the public service obligations and the competitive environment 29

5.2. On the privatisation of Toremar 29

5.2.1. On the price paid for Toremar’s shares 29

5.2.2. On the transparent and non-discriminatory character of the procedure and on the bundling of the assets of Toremar with a new public service contract 29

5.3. On the compliance of the new public service contract with the Altmark conditions 30

5.4. On the prolongation of the initial Convention between Toremar and Italy 30

6. Assessment 31

6.1. Existence of aid within the meaning of Article 107(1) TFEU 31

6.1.1. The prolongation of the initial Convention between Toremar and Italy 31

6.1.1.1. State resources 31

6.1.1.2. Selectivity 31

6.1.1.3. Economic advantage 31

6.1.1.4. Effect on competition and trade 33

6.1.1.5. Conclusion 33

6.1.1.6. New or existing aid 33

6.1.2. The award of the new public service contract bundled with Toremar’s business to Moby/Toremar 34

6.1.2.1. Altmark 1 34

6.1.2.2. Altmark 2 40

6.1.2.3. Altmark 3 40

6.1.2.4. Altmark 4 43

6.1.2.5. Conclusion 48

6.1.3. The measures laid down by the 2010 Law 48

6.1.3.1. Possible use of funds to upgrade ships for liquidity purposes 48

6.1.3.2. Fiscal exemptions related to the privatisation process 49

6.1.3.3. Possibility of using FAS resources to meet liquidity needs 49

6.1.4. Cqonclusion on the existence of aid 50

6.2. Lawfulness of aid 50

6.3. Compatibility of aid 50

6.3.1. The prolongation of the initial Convention between Toremar and Italy 50

6.3.1.1. Applicable rules 50

6.3.1.2. Genuine service of general economic interest as referred to in Article 106 TFEU 52

6.3.1.3. Need for an entrustment act specifying the public service obligations and the methods of calculating compensation 54

6.3.1.4. Duration of the period of entrustment 55

6.3.1.5. Compliance with Directive 2006/111/EC 55

6.3.1.6. Amount of compensation 55

6.3.1.7. The berthing priority 57

6.3.1.8. Conclusion 58

6.3.2. Conclusion on compatibility of aid 58

7. Conclusion 58

COMMISSION DECISION (EU) 2022/348

of 17 June 2021

on the measures SA.32014, SA.32015, SA.32016 (2011/C) (ex 2011/NN) implemented by Italy and the Region of Tuscany for Toremar and its acquirer Moby

(notified under document C(2022) 4271)

(Only the Italian version is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provision(s) cited above (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) On 23 March 2009, 9 December 2009, 21 December 2009, 6 January 2010, 27 September 2010 and 12 October 2010, the Commission received six complaints concerning various support measures adopted by Italy in favour of the companies of the former Tirrenia Group (2). The complaints concerned the public service compensation granted to these companies after the expiry of the initial public service contracts concluded with Italy for the period between January 1989 and December 2008 (‘the initial Conventions’), additional support measures laid down by several legislative acts adopted in the context of the privatisation process of the companies, as well as certain issues regarding particularly the privatisation procedure of Tirrenia di Navigazione S.p.A. (‘Tirrenia’) and Siremar – Sicilia Regionale Marittima S.p.A. (‘Siremar’).

(2) On 1 December 2010, Italy notified to the Commission the compensation paid in 2009 and 2010 by Italy to Toscana Regionale Marittima S.p.A. (‘Toremar’).

(3) On 5 October 2011, the Commission opened the formal investigation procedure in respect of various measures adopted by Italy in favour of the companies of the former Tirrenia Group (‘the 2011 Decision’). The investigation concerned, inter alia, the compensation granted to Toremar – for the operation of a number of maritime routes as of 1 January 2009 and a number of other measures granted to that company (see recital (33)).

(4) The 2011 Decision was published in the Official Journal of the European Union. The Commission invited interested parties to submit their comments on the measures under investigation (3).

(5) By letter dated 28 September 2011, Italy had already informed the Commission of the intention to privatise the regional companies of the former Tirrenia Group, including Toremar. On 26 October 2011, the Commission sent a request for information to Italy concerning the privatisation procedure. On 30 November 2011, Italy submitted a reply to the Commission’s request for information of 26 October 2011.

(6) On 15 November 2011, Italy submitted comments on the measures covered by the 2011 Decision.

(7) By fax sent on 28 February 2012, the company Toscana di Navigazione S.r.l. submitted a complaint alleging unlawful State aid as a result of the privatisation of Toremar and the compensation paid to Moby S.p.A. (‘Moby’), Toremar’s selected buyer. Specifically, the complainant alleges that: (i) the sale procedure has conferred an advantage on Moby, (ii) the merger between Toremar and Moby results in a monopoly on the Piombino – Elba island routes, and (iii) the compensation granted to Moby for the operation of the public service through the 12-year duration of the new public service contract is incompatible with the internal market to the extent that similar services are already provided on commercial terms by the complainant itself.

(8) By letter dated 19 July 2012, Italy provided additional information on the privatisation of the regional companies of the former Tirrenia Group, including Toremar.

(9) On 7 November 2012, the Commission extended the investigation procedure, inter alia, in respect of certain additional support measures granted by the Region of Tuscany to Toremar in respect of the public compensation granted to Toremar under the new public service contract. An amended version of that Decision was adopted by the Commission on 19 December 2012 (‘the 2012 Decision’).

(10) The 2012 Decision was published in the Official Journal of the European Union. The Commission invited interested parties to submit their comments on the measures under investigation (4).

(11) On 11 December 2012, Italy submitted its comments and on 22 April 2013, the Commission received comments from Toremar and its buyer, Moby.

(12) By its decision of 22 January 2014 (‘the 2014 Decision’) (5), the Commission closed the formal investigation procedure as concerns various measures adopted by the Sardinian Region in favour of Saremar. The appeal lodged by Saremar and the Region against that decision was dismissed by the General Court in 2017 (6).

(13) On 25 January 2018, 29 March 2018, 31 August 2018, 12 February 2019, 5, 14 and 17 February 2020, and 12 October 2020, the Commission requested additional information from Italy. Italy provided this information on 26 April 2018, 31 May 2018, 2 November 2018, 11 December 2018, 8 April 2019, 16 and 28 October 2019, 7, 16 and 23 February 2020, 21 April 2020, 9 November 2020, and 1 and 10 December 2020.

(14) This Decision only concerns possible aid to Toremar as specified in Section 2.3. All remaining measures subject to the 2011 and 2012 Decisions are being investigated separately under cases SA.32014, SA.32015 and SA.32016 and are not therefore covered by this Decision. In particular, those remaining measures concern other companies of the former Tirrenia Group.

2. BACKGROUND AND DESCRIPTION OF THE MEASURES SUBJECT TO INVESTIGATION

2.1. General framework

2.1.1. The initial Conventions

(15) The Tirrenia Group was traditionally owned by Italy through the company Fintecna (7) and initially included six companies, namely Tirrenia, Adriatica, Caremar, Saremar, Siremar and Toremar. These companies provided maritime transport services under separate public service contracts concluded with Italy in 1991, in force for 20 years between January 1989 and December 2008 (‘the initial Conventions’). Fintecna held 100 % of Tirrenia’s share capital, which in turn wholly owned the regional companies Adriatica, Caremar, Siremar, Saremar and Toremar. Adriatica, which used to operate a number of routes between Italy and Albania/Croatia/Greece/Montenegro, was merged with Tirrenia in 2004.

(16) The purpose of these initial Conventions was to guarantee the regularity and reliability of the maritime transport services, the majority of them connecting mainland Italy with Sicily, Sardinia and other smaller Italian islands. To that effect, Italy granted financial support in the form of subsidies paid directly to each of the companies of the Tirrenia Group.

(17) Toremar traditionally operated a series of maritime cabotage (8) routes between the Region of Tuscany and the smaller neighbouring islands. The exact routes concerned are described under recital (38).

(18) On 6 August 1999, the Commission decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) in respect of aid paid on the basis of the initial Conventions to the six companies that then formed the Tirrenia Group.

(19) During the investigation phase, Italy requested that the Tirrenia Group case would be split up so that priority could be given to reaching a final decision concerning Tirrenia. This request was motivated by Italy’s plan to privatise the Group, beginning with Tirrenia, and its intention to speed up the process in relation to that company.

(20) The Commission decided that it could accede to Italy’s request, and by Commission Decision 2001/851/EC (9) it closed the procedure initiated in respect of the aid awarded to Tirrenia (‘the 2001 Decision’). The aid was declared compatible subject to certain commitments by Italy.

(21) By Commission Decision 2005/163/EC (10) (‘the 2004 Decision’), the Commission declared the compensation granted by Italy to the Tirrenia Group companies other than Tirrenia to be partially compatible with the internal market, partially compatible but conditional upon the respect of a number of undertakings by Italy, and partially incompatible with the internal market. The Decision was based on accounting data spanning from 1992 to 2001 and contained certain conditions aimed at ensuring the compatibility of the compensation throughout the duration of the initial Conventions.

(22) By Judgment of 4 March 2009 in cases T-265/04, T-292/04 and T-504/04 (11) (‘the 2009 Judgment’) the General Court annulled the 2004 Decision.

(23) By Commission Decision (EU) 2020/1411 (12), the Commission concluded the investigation on the Tirrenia Group companies other than Tirrenia, including Toremar, for the period 1992-2008 (the ‘2020 Tirrenia Group Decision’). The Commission concluded that the aid granted for the provision of maritime cabotage transport services constituted existing aid, while the aid granted for the provision of international maritime transport services was compatible with the 2011 services of general economic interest (‘SGEI’) Framework (the ‘2011 SGEI Framework’) (13).

(24) By Commission Decision (EU) 2020/1412 (14), the Commission closed the formal investigation procedure as concerns the measures granted to Tirrenia and its acquirer CIN, for the period 2009-2020.

2.1.2. The prolongation of the initial Conventions

(25) Article 26 of Decree Law No 207 of 30 December 2008, converted into Law No 14 of 27 February 2009, laid down the prolongation of the initial Conventions (including the one applicable to Toremar) which were initially to expire on 31 December 2008, for 1 year until 31 December 2009.

(26) Article 19-ter of Decree Law No 135 of 25 September 2009, converted into Law No 166 of 20 November 2009 (‘the 2009 Law’), laid down that, in view of the privatisation of the Tirrenia Group companies, the shareholding of the regional companies (except for Siremar) would be transferred from parent company Tirrenia without any consideration being paid as follows: (a) Caremar would initially be transferred to the Region of Campania. The latter would subsequently transfer to the Region of Lazio the Caremar’s business operating the transport connections with the Pontino archipelago on a standalone basis under the name Laziomar (15); (b) Saremar would be transferred to the Region of Sardinia; and (c) Toremar would be transferred to the Region of Tuscany.

(27) The 2009 Law also specified that new Conventions would be agreed between Italy and Tirrenia and Siremar by 31 December 2009. Likewise, the regional services would be enshrined in draft Public Service Contracts, to be agreed between the regional authorities of Sardinia and Tuscany and Saremar and Toremar respectively by 31 December 2009 and between the regions of Campania and Lazio and Caremar and Laziomar respectively by 28 February 2010. The draft new Conventions/Public Service Contracts would be put up for tender with the companies themselves and signed with the buyers upon finalisation of the privatisation of each of those companies (16).

(28) To that end, the 2009 Law further prolonged the initial Conventions (including the one applicable to Toremar) from 1 January 2010 until 30 September 2010.

(29) The 2009 Law also set annual compensation ceilings for the operation of the services as of 2010 (under the prolongation of the initial Conventions, as well as under the new Conventions and Public Service Contracts), at a total of EUR 184 942 251, as follows: Company Maximum annual compensation Tirrenia EUR 72 685 642 Siremar EUR 55 694 895 Saremar EUR 13 686 441 Toremar EUR 13 005 441 Caremar EUR 29 869 832 (17) Table 1 – Compensation ceilings as of 2010

(30) Finally, Article 1 of Law No 163 of 1 October 2010 converting Decree-Law No 125 of 5 August 2010 (‘the 2010 Law’) laid down the further prolongation of the initial Conventions (including the one applicable to Toremar) from 1 October 2010 until the completion of the privatisation processes of Tirrenia and Siremar, which took place on 19 July 2012 and 31 July 2012 respectively.

2.1.3. The privatisation of Toremar and the conclusion of the new service contract

(31) In January 2010, a tender procedure was launched (see Section 2.3.2) to find a buyer for Toremar bundled together with the new public service contract for the provision of maritime services over a period of 12 years in exchange for public service compensation.

(32) Following its successful offer in the tender procedure, Moby became the new owner of Toremar. The sale contract between the Region of Tuscany and Moby was signed on 2 January 2012. On the same date, the parties (including Toremar) signed the new service contract for the provision of maritime services. On this basis, the ownership of all Toremar’s shares was transferred from the Region of Tuscany to Moby on 2 January 2012.

2.2. Measures in scope of the 2011 and 2012 Decisions

(33) The following measures have been subject to assessment in the formal investigation procedure opened by the 2011 and 2012 Decisions: (a) Compensation for the provision of services of general economic interest (‘SGEI’) under the prolongation of the initial Conventions (measure 1); (b) Illegal prolongation of rescue aid by Tirrenia and Siremar (measure 2); (c) The privatisation of the companies of the former Tirrenia Group (18) (measure 3); (d) Compensation paid for the operation of SGEI under the future Conventions/Public Service Contracts (measure 4); (e) The berthing priority (measure 5); (f) The measures laid down by the 2010 Law converting Decree Law 125/2010 (measure 6); (g) Additional measures adopted by the Sardinian Region in favour of Saremar (measure 7);

(34) By its 2014 Decision the Commission closed the formal investigation procedure as concerns the measures adopted by the Sardinian Region in favour of Saremar referred to above as Measure 7 with the exception of one measure (19).

2.3. Detailed description of the measures subject to the present Decision

(35) This Decision only deals with measures 1, 3, 4, 5 and 6 as listed in recital (33) in so far as they involve Toremar and Moby. These measures are described in more detail in the following sections.

2.3.1. The prolongation of the initial Convention between Toremar and Italy

2.3.1.1. The public service obligations

(36) Article 1 of the initial Convention with Toremar provided for 5-year plans to detail the ports to be served, the type of vessels to be used, the required frequency of the service and the fares to be paid.

(37) The first 5-year plan (1990-1994) for Toremar was approved by Ministerial Decree of 29 May 1990, and applied retrospectively as of 1 January 1990. The second plan, covering the period 1995-1999 and approved by Ministerial Decree of 14 May 1996, left the routes and frequencies unchanged. As for the periods 2000-2004 and 2005-2008, a plan was drawn up but never formally approved by the competent ministries. Instead, ad hoc decisions have been taken by the government with a view to bringing the services more closely into line with the needs of the local communities, without however making substantive changes to the public service system.

(38) Based on the initial Convention, as prolonged with subsequent legal acts mentioned above in recitals (25) to (30), Toremar operated the following routes throughout the year: — On the Livorno – Gorgona – Capraia route Toremar provided passenger and mixed services (passengers and vehicles), with a bi-weekly service to the island of Gorgona and a daily service to the island of Capraia. Another operator, Piccola Società Cooperativa Marittima Ligure Tirrena A.R.L., had also been present on the route during the months of July and August using a high-speed passenger only vessel. However, that company stopped operating the route in 2010. — On the Piombino – Portoferraio (island of Elba) Toremar provided daily mixed services. Moby has been also competing on this route with frequent mixed sailings all year round, as well as two new entrants, Blu Navy, which began sailings in 2010 (from April to October) and Elba Ferries, which operated only during the summer season. — On the Piombino – Cavo – Portoferraio route (island of Elba) Toremar operated the only passenger service, with the use of a fast hydrofoil vessel. — On the Piombino – Rio Marina – Porto Azzurro – Pianosa route (island of Elba) Toremar was the only operator providing daily mixed services to the port of Rio Marina and a weekly service to the port of Pianosa. — On the Porto S. Stefano – Island of Giglio route Toremar provided daily mixed services all year round. The operator Maregiglio was also present on the route providing mixed services during the period April – November, with an average of 2 to 4 sailings per day during October and November and six to eight between April and September.

2.3.1.2. Budget and duration

(39) Table 2 below shows the annual amount of compensation paid to Toremar by Italy for the period 2009 – 2011.

(40) In addition to this, the Region of Tuscany had reserved an additional annual budget of EUR 3 000 000 to be paid to Toremar after reporting of the actual revenues and costs incurred during the period 2010-2011. In those years, as a result of the economic and financial crisis, the number of passengers fell substantially, whilst there had been an increase in fuel costs. In the view of the Region of Tuscany, the compensation paid from the central State budget was therefore not sufficient to cover the totality of the public service cost. Year Compensation Reserve Total 2009 13 572 035 13 572 035 2010 13 005 441 3 000 000 16 005 441 2011 13 005 441 3 000 000 16 005 441 Table 2 – Compensation granted for the period 2009-2011 (EUR)

(41) The initial Convention provides for the annual public service compensation to be paid as follows: an initial advance payment is made in March of each year, equivalent to 70 % of the compensation paid the previous year. A second payment, made in June, is equal to 20 % of the compensation. The difference between the amounts paid and the shortfall between operating costs and revenue during the year in progress constitutes the balance, which is paid by 30 November. If it turned out that Toremar has received a sum greater than the net cost of the services provided (revenue minus losses), the initial Convention provides that Toremar is required to reimburse the difference (20). — Compensation granted in 2009

(42) Presidential Decree No 501 of 1 June 1979 (‘Decree No 501/79’) specifies the various elements (revenues and costs) which enter into the calculation of the subsidy paid to maritime public service operators. Furthermore, Law No 856 of 5 December 1986 (‘Law 856/86’) provided for certain alterations to the system of maritime public service obligations in Italy. Regarding the connections with minor and major islands, Article 11 thereof amended the criteria for the calculation of the public service compensation. Indeed, the subsidy had to be calculated based on the difference between the revenues and the costs of the service as determined with reference to average and objective parameters, and had to include a reasonable return on invested capital. Article 11 also lays down that the public service contracts had to include the list of the subsidised routes, the frequency and the types of ships to be used. The subsidies were to be approved by the responsible Ministers. The principles laid down in Presidential Decree No 501/79 and Law No 856/86 were reflected in the initial Conventions.

(43) Indeed, in 2009, the compensation for the discharge of SGEI was calculated in accordance with the methodology laid down by the initial Convention in force since 1991 and prolonged after its initial expiry date of 31 December 2008. In particular, the compensation corresponded to the accumulated net loss on the services operated under the public service regime, to which a variable amount corresponding to the return on invested capital was added.

(44) The various cost elements taken into consideration in order to calculate the compensation defined by the public authorities were the following: acquisition, advertising and accommodation costs, loading, unloading and manoeuvring costs, cost of shore administrative personnel, ship maintenance costs, administrative costs, insurance costs, rent and leasing costs, fuel, taxes and depreciation costs. — Compensation granted in 2010 and 2011 and as from 2012

(45) As from 2010, the compensation for the operation of the SGEI has been determined by the application of a new methodology laid down in the CIPE (21) Directive of 9 November 2007 titled ‘Criteria for the definition of the public service obligations and the fare dynamics in the sector of maritime cabotage of public interest’ (‘the CIPE Directive’) (22). According to the preamble, the CIPE Directive was issued in view of the privatisation of the public companies operating maritime services under a public service regime (23). The provisions of the CIPE Directive were applied in respect of the services provided by the companies of the Tirrenia Group as of 2010, even prior to the entry into force of the respective new Conventions and Public Service Contracts following the respective privatisations.

(46) The method laid down in the CIPE Directive allows the companies operating the maritime public service to make an appropriate return. The rate of return on capital is calculated on the basis of the weighted average cost of capital (‘WACC’).

(47) The required return to equity (24) is calculated using the Capital Asset Pricing Model (‘CAPM’). On the basis of the CAPM, the cost of equity is derived as a function of (i) the risk-free rate, (ii) the Beta (an estimate of risk profile of the company relative to equity market) and (iii) the equity risk premium assigned to the equity market.

(48) In particular, the cost of equity would be calculated by applying a premium for bearing extra risk to the rate of return on risk-free activities. This premium is calculated as the risk premium of the market multiplied by its Beta, which measures how risky a specific activity is relative to the market.

(49) The CIPE Directive provides that the rate of return on risk-free activities corresponds to the average gross yield on benchmark 10-year bonds with reference to the previous 12 months for which available data exists.

(50) The CIPE Directive sets a 4 % market risk premium. However, in case of a service that is operated on a non-exclusive basis, the presumably greater risk borne by the operator is remunerated by the addition of an extra 2,5 % to the market risk premium.

(51) In practice, the amount of compensation paid to Toremar can however not exceed the ceiling of EUR 13 005 441 per year as laid down by the 2009 Law (see recital (29)). Although the 2009 Law caps the annual compensation paid to all Tirrenia companies for the operation of the maritime services subject to the public service regime, the CIPE Directive also contains certain safeguards that enable those operators to sufficiently cover their operating costs.

(52) In particular, according to the CIPE Directive the scope of the services, the maximum fares set out by the new public service contract and the compensation actually granted must be defined such as to grant the service provider coverage of the entirety of admissible costs. The following formula is applicable: VA(RSP) + VA(AI(X)) = VA(CA) where: — VA(RSP) is the discounted value of the compensation for the discharge of the public service obligations; — VA(AI(X)) is the discounted value of other revenue (fare receipts and other); — (VA(CA)) is the discounted value of the admissible operating costs, debt repayment and return on invested capital.

(53) In case the above equation does not hold, the scope of the subsidised activities could be reduced, or alternatively the service organisation (e.g. type of ships) would be reviewed or the fare constraints would be modified.

(54) Furthermore, the fare ceiling applicable to each service, net of taxes and port dues, is adjusted every year on the basis of a price-cap formula as follows: ΔΤ = ΔΡ – Χ where: — ΔΤ is the annual percentage change in the fare ceiling; — ΔΡ is the rate of inflation for the year of reference; — Χ is a real annual rate of adjustment of the fare ceiling, laid down in the public service contract, which remains constant over the duration of the contract.

(55) The CIPE Directive also specifies that the fare ceiling may be adjusted to reflect variations in fuel costs, taking standard publicly available prices as reference.

2.3.2. Toremar’s privatisation

(56) On 13 January 2010, the Region of Tuscany published in its Official Journal (25) and the Official Gazette of the Italian Republic (26) the call for tenders for the sale of Toremar and the award of a public service compensation for the discharging of public service obligations on the maritime routes identified above under recital (38). This notice was furthermore published in the Official Journal of the European Union (27) on 14 January 2010 and in several national newspapers (28).

(57) Italy chose the procedure referred to in Article 20(1) of the Code of Public Contracts – Legislative Decree No 163/2006 (il Codice dei Contratti pubblici), which resembles Article 21 of Directive 2004/18/EC of the European Parliament and of the Council (29) that states that ‘[c]ontracts which have as their object services listed in Annex II B [such as water transport services] shall be subject solely to Article 23 [technical specifications] and Article 35(4) [notices]’. The chosen award criterion was that of the most economically advantageous offer.

2.3.2.1. The sale procedure and final award

(58) Following the publication of the call for tenders, on the expiry of the deadline, 11 parties expressed an interest to participate, namely: Moby, Toscana di Navigazione S.r.l., Pigreco S.r.l., Sinven S.r.l., Vector S.r.l., Forship S.r.l., Medmar Navi S.p.a., Grandi Navi Veloci S.p.a., Buquebus Italia S.r.l., Loss Cipreses S.p.a. and Blu Navy/Transeuropa Ferries.

(59) The documentation submitted by all 11 companies confirmed that they all met the requirements set out in the tender notice and they were therefore all invited to submit a tender.

(60) The invitation to submit a tender contained the new draft 12-year contract to be signed between the successful bidder and the Region of Tuscany, and more detailed information concerning the tendering procedure. Particularly, the invitation letter confirmed that the most economically advantageous offer would be chosen for the service contract with price scoring 20 points, quality 70 points and additional services 10 points. As regards the price for the sale of Toremar’s business, the invitation letter mentioned a fixed amount corresponding to EUR 10 258 397, calculated on the basis of an independent study, which assessed the total value of Toremar’s assets (see recitals (65) to (73)). This price was non-negotiable and was not subject of the financial offer of the tenderers

(61) Therefore, all potential tenderers were requested to include the above fixed amount for the sale of Toremar in their financial offer, while the Region of Tuscany would choose the most economically advantageous offer for the tender as a whole based on the price and other, mainly quality, criteria concerning the service as set out in the invitation letter (see recital (60)).

(62) The 11 tenderers were also given access to virtual data rooms containing the following: (1) All legal, technical, financial and commercial information about Toremar; (2) Information on the fleet, the intangible assets and the immovable property of the company; (3) All information concerning contracts for the supply of services and purchase of goods; (4) The scoring procedures and the technical tender form; (5) All other information required so that the potential buyers may valuate correctly the object of the sale.

(63) Two companies submitted a bid, namely Moby and Toscana di Navigazione, both established shipping operators in Italy. The remaining nine companies did not submit a bid at the expiry of the deadline.

(64) After the evaluation of the tenders, Toscana di Navigazione S.r.l. was excluded from the procedure, as its economic offer submitted was inconsistent with the technical offer and financial capacity requirements of the tender documentation. The tender was therefore awarded to Moby both as regards the privatisation of Toremar business and the operation of the maritime services (see Section 2.3.3).

2.3.2.2. The sale contract

(65) Given the nature of the tender, it was the Region of Tuscany’s choice, with a view to identify the best competitive bid, to define a fixed amount for the price of Toremar’s share capital.

(66) The sale contract was signed on 2 January 2012 and defines the transfer of Toremar shares to Moby for the fixed price of EUR 10 258 397. This amount is paid in ten annual instalments starting from the end of the first year of the contract, i.e. 2 January 2013.

(67) The fixed price of EUR 10 258 397 for 100 % of Toremar’s shares was determined on the basis of an independent expert evaluation commissioned by the Region of Tuscany and prepared by Fidi Toscana S.p.A. (‘the Fidi report’).

(68) The amount refers to the value of tangible assets, buildings, vessels, other tangible fixed and financial assets and other receivables of the company at 30 June 2010. The intangible assets (e.g. concessions, authorisations, licences, trademarks etc.) were excluded from the evaluation, and left to the discretion of the bidders. The amount was then subjected to amendments deriving from the difference between the net book value of the shares on 30 June 2010 and the market value of the shares (30).

(69) This aforementioned amount also includes a credit of EUR 9 772 572 claimed from Tirrenia (‘the credit’).

(70) Under Article 1(5) and (6) of the sale contract, with reference to the first instalment, Moby declares that it has paid in advance to the Region of Tuscany the amount of EUR 485 825, which equals the difference between the sale price and the credit.

(71) Under Article 1(3) of the sale contract, the payment of the set price – except of what is paid in advance – is subject to the condition that the amount of EUR 9 772 572 that is owed to Toremar by Tirrenia is paid off (31). Under Article 4(3) of the sale contract, in case the credit amount is not recovered, Moby remains obliged to transfer the credit (or any residual credit) to the Region of Tuscany at any time until the expiry of the service contract (32).

(72) According to Article 4 of the sale contract, Moby is obliged to notify the Region of Tuscany of any sale of the Toremar shares to third parties remaining, however, jointly responsible with the new purchaser of the Toremar, with respect to the obligations of the service contract.

(73) Finally, according to Article 5 of the sale contract, the Banca Popolare di Milano has provided a guarantee in favour of the Region of Tuscany covering the total sale price of the Toremar shares (including the buyer’s obligation to transfer any credit amount not yet recovered from Tirrenia).

2.3.2.3. Proceedings at national level

(74) The result of the tender proceeding awarding the Toremar business and the public service contract to Moby was the subject of several proceedings before national courts.

(75) Toscana di Navigazione S.r.l., the excluded bidder and complainant in these proceedings, challenged the legality of its exclusion from the tender procedure before the national courts. Initially, the complainant brought an application for interim relief before the Regional Administrative Court of Tuscany. The latter, by Order No 774 of 14 July 2011, rejected the application. This ruling was upheld at appeal by the Council of State by its Order No 3666 of 31 August 2011, which stressed in particular that the economic bid presented by the company was incomplete, as regards the additional services to be performed and the fact that it was not set on an annual basis, and as such, the re-evaluation mechanism provided for in the tender documentation, could not be applied.

(76) Toscana di Navigazione S.r.l. then appealed the outcome of the tender procedure before the Regional Administrative Court of Tuscany, which rejected the appeal by Order No 414 of 1 March 2012, confirming that the company’s bid was inconsistent with the requirements of the contracting authority.

(77) This judgement was appealed by Toscana di Navigazione S.r.l. before the Council of State, which, by Order No 83/2015, decided in favour of the company, requesting the Region of Tuscany to revisit its tender procedure and review its requirements. Following an audit undertaken by the Region of Tuscany, Decree No 1312 of 30 March 2015 was adopted, upholding the decision of the Region of Tuscany to exclude the company from the tender procedure, as the technical, economic and financial capacity requirements for participation in the tender had not been proved.

(78) Toscana di Navigazione S.r.l. appealed against Decree No 1312 of 30 March 2015 before the Regional Administrative Court of Tuscany, which rejected the appeal by Order No 1446 of 26 October 2015. The latter was finally upheld by the Council of State with Order No 3347/2016.

2.3.3. The new service contract between the Region of Tuscany and Moby/Toremar

2.3.3.1. The beneficiary

(79) As mentioned in recital (63), Moby and Toscana di Navigazione submitted a bid for the new public service contract. Following the exclusion of the latter company, Moby/Toremar (33) signed the new public service contract with the Region of Tuscany for the operation of maritime routes on 2 January 2012.

(80) According to Article 1(2) of the new service contract, Moby shall carry out the services stipulated in the contract exclusively through Toremar.

2.3.3.2. The routes

(81) Moby/Toremar provides passenger and mixed (passenger and cars) services under the public service regime on multiple maritime cabotage routes as follows: Livorno – Gorgona – Capraia (Line A1) Piombino – Portoferraio (island of Elba) (Line A2) Piombino– Cavo – Portoferraio (island of Elba) (Line A2 fast) Piombino – Rio Marina – Porto Azzurro – Pianosa (island of Elba) (Line A3) Porto S. Stefano – Island of Giglio (Line A4) Porto S. Stefano – Giannutri (Line A5) Table 3 – Network of routes operated by Moby/Toremar under the new service contract

2.3.3.3. Duration

(82) The new service contract between the Region of Tuscany and Moby/Toremar has a duration of 12 years (2012-2024).

2.3.3.4. The public service obligations

(83) The requirements laid down in the contract with Moby/Toremar concern among others the ports served, the type and capacity of the vessels assigned to the maritime routes operated, the frequency of service and the maximum fares.

2.3.3.5. The compensation provisions and final award

(84) In the tender procedure, the amount of the yearly compensation under the new contract for the discharging of public service obligations in the maritime routes identified under recital (81) was capped at EUR 14 550 400 (totalling EUR 174 604 810 over the 12 years contract period). This value was determined by the sum of the following: EUR 13 005 441 as set by the 2009 Law (see recital (29)) plus an increase of EUR 1 544 959, as envisaged in Article 19-ter, paragraph 16(d), of the 2009 Law) due to the significant investments required to be carried out by the operator over the whole contract period.

(85) This amount of compensation was determined on the basis of the methodology laid down by the CIPE Directive (see recitals (45) to (55)). The safeguards laid down by the CIPE Directive have been reflected in the new service contract.

(86) Pursuant to Article 4(2) of the service contract, the annual compensation to be paid to Moby/Toremar was estimated to amount EUR 13 333 318. Nevertheless, according to Article 4(3) of the service contract, the actual compensation paid to Moby/Toremar is determined as the outcome of the service actually carried out (i.e. price per mile for each route), taking into account the risks involved (commercial and industrial) as laid down in the contract (e.g. compensation reduction in case of the company not sailing, penalties in case of services being disconnected etc.).

(87) The service contract provides for a payment of compensation that does not exceed what is necessary to cover the net costs incurred for the fulfilment of the public service obligations (economic-financial balance). In case of deviations from this contractual equilibrium, the service contract provides in Article 26 for a rebalancing mechanism that evaluates all the parameters linked to the payment of the compensation. Should, therefore, as a result of a material change (34) in the economic parameters on which it is based, the compensation amount prove insufficient to cover all costs incurred in the provision of the service, the new service contract allows for a revision of the key parameters of the compensation namely: (i) the tariff system; (ii) the level of the public services offered; (iii) the level of the annual price cap; and (iv) the capital grants for investments.

(88) Under Article 4(4), (5) and (6) of the service contract, the compensation paid to the operator shall be reduced by 80 % in the case of interruption of services because of employees’ strike and 30 % in the case of unforeseen events, whereas failure to perform the services would result in the payment of penalties by the operator.

(89) Pursuant to Article 24 of the service contract, the operator is required to implement a system of technical, economic and management monitoring, according to which the profit and loss annual accounts related to the service provided on the basis of the service contract are sent to the regional authorities for verification.

2.3.4. The berthing priority

(90) Article 19-ter, paragraph 21, of the 2009 Law laid down that, in order to guarantee the territorial continuity with the islands and in light of their public service obligations, the companies of the former Tirrenia Group, including Toremar, would keep the berthing already allocated and the priority in the allocation of new slots in line with the procedures set forth by the Maritime Authorities as established by Law No 84 of 28 January 1994 and the Italian Maritime Code.

2.3.5. The measures laid down by the 2010 Law

(91) The 2010 Law laid down the possibility for the undertakings of the former Tirrenia Group to use, on a temporary basis, the financial resources already committed (35) to the upgrade and modernisation of the fleet to cover pressing liquidity needs. The undertakings of the former Tirrenia Group that made use of this possibility were however required to replenish these dedicated funds, so that they could still undertake the necessary upgrades for their ships. These upgrades were necessary to meet new international safety standards following the 1996 Stockholm Agreement (36).

(92) In particular, drawing from two facilities (37), EUR 23 750 000 were set aside to pay for the upgrades of the entire Tirrenia Group. Toremar was allocated EUR 1 617 300 out of this amount, which it used to upgrade its fleet (see recital (138)).

(93) In addition, Article 1 of the 2010 Law also laid down the following: (a) The initial Conventions are prolonged as from 1 October 2010 until the end of the privatisation process of Tirrenia and Siremar (see also recital (30)); (b) Article 19-ter of Decree Law 135/2009, converted with modifications into the 2009 Law is amended by the introduction of paragraph 24a. According to that paragraph, all official acts and operations in the implementation of the provisions of paragraphs 1-15 of the 2009 Law benefit from fiscal exemptions. These paragraphs relate to the liberalisation of the maritime cabotage sector through the privatisation of the Tirrenia group, including its preparatory step, i.e. the transfer of the regional companies to the respective regions; (c) In order to ensure the continuity of the public service and to support the privatisation process of the former Tirrenia group companies, the regions in question may make use of the resources of the Fondo Aree Sottoutilizzate (‘FAS’) (38) pursuant to the CIPE Directive (39).

2.4. Infringement procedure No 2007/4609

(94) Following earlier exchanges between the Commission’s services and Italy, the Commission’s Director-General responsible for energy and transport on 19 December 2008 sent a request for information to Italy. This request concerned among other things, an overview of the public service routes at that time and the public service remit that Italy envisaged under the proposed new Conventions. Furthermore, Italy was asked to provide more details about the privatisation plans for the Tirrenia Group.

(95) In its letter of 28 April 2009, Italy provided a detailed reply to the Commission’s request of 19 December 2008. In that letter, among other things Italy stated the following: (1) the extension of the initial Conventions until 31 December 2009 was necessary to achieve the liberalisation of the maritime cabotage sector in Italy through the privatisation of the Tirrenia Group; (2) the public service compensation granted to the Tirrenia Group was necessary to ensure territorial continuity with the islands through maritime links which were not satisfactorily provided by private operators on the market; (3) a thorough rationalisation process of the routes had been concluded on 10 March 2009. This process took into account the relevant social, employment and economic aspects, as well as the need to safeguard essential links for territorial continuity and included a consultation of the six Regions concerned. This rationalisation would result in the reduction of the net cost of the public service of approximately EUR 66 million and the redundancy of some 600 crew members for the entire Tirrenia Group. Italy also recalled that the 2009 rationalisation complemented earlier efforts (in 2004, 2006 and 2008) to reduce the services operated by the Tirrenia Group; (4) the objectives were to (i) maintain the links necessary to ensure territorial continuity with and between islands and the mainland, and the right to health, study and mobility, (ii) rationalise links where there were private operators who provided the same connections over the same time period, with similar guarantees of quality and continuity, and (iii) rationalise summer and high-speed connections which transport only persons; (5) in the letter, Italy gave an overview of the routes operated by the companies of the Tirrenia Group during 2008 and the reduced number of routes the Tirrenia Group companies would operate in 2009. According to Italy, the latter routes would form the basis for the new Conventions that were to be concluded with the new owners of the Tirrenia Group companies.

(96) On 21 December 2009, the Commission’s Director-General responsible for energy and transport sent a letter to Italy noting, inter alia, that in the light of the radical overhauling of the maritime cabotage sector in Italy, and because of the sizable social impact the privatisation would have entailed, if the tenders were carried out on a simple public service contract basis, tendering out the shipping companies endowed with such contracts was acceptable – in principle and as an exception – for the purpose of ensuring compliance with the criterion of non-discrimination among Community ship-owners laid down in Council Regulation (EEC) No 3577/92 (40) (‘the Maritime Cabotage Regulation’).

(97) On 29 January 2010 (41), the Commission sent a letter of formal notice regarding the wrong implementation of the Maritime Cabotage Regulation. In this letter, the Commission recalled that that Regulation requires that whenever a Member State concludes public service contracts or imposes public service obligations, it is to do so on a non-discriminatory basis in respect of all Community shipowners. The Article 4(3) of that Regulation provides that existing public service contracts may remain in force up to the expiry date of the relevant contract. However, the Commission noted that the companies of the Tirrenia Group continued to operate maritime transport services after the expiry of the respective public service contracts (the initial Conventions). In particular, these Conventions were due to expire at the end of 2008 but were repeatedly prolonged by Italy. Therefore, the Commission invited Italy to present its observations.

(98) Also on 29 January 2010, the Commission’s Director-General responsible for energy and transport replied to Italy’s letter of 22 January 2010. The Director-General emphasised that his reply only concerned the compliance with the Maritime Cabotage Regulation and not State aid issues. Against this background, the Director-General indicated that the justifications provided concerning certain routes were sufficient to remove the doubts expressed earlier. The Director-General recalled that public service contracts can only cover routes for which there is market failure.

(99) On 29 March 2010, Italy replied to the Commission’s letter of formal notice of 29 January 2010. In its reply, among other things Italy clarified that in the tender procedure for Toremar, 11 interested parties would take part in the next phases of that procedure.

(100) On 10 September 2010, Italy informed the Commission during an ad hoc meeting, that the competitive procedure for the contract of among others Toremar was also delayed. Subsequently, Law No 163 of 1 October 2010 further prolonged the initial Conventions until the completion of the privatisation processes of Tirrenia and Siremar (see also recital (30)).

(101) In light of these developments, the Commission sent a complementary letter of formal notice on 24 November 2010. In this letter, the Commission stated the following: (a) the initial Convention of among others Toremar was extended automatically and without any competitive procedure; (b) while the public service contracts in question continued to be applied, no competitive procedure had been completed, for Toremar among others; (c) it reserved its right to issue a reasoned opinion if necessary (taking into account any comments Italy might make).

(102) By letter of 15 July 2016, Italy informed the Commission that the privatisation of all companies of the former Tirrenia Group had been completed. On 8 December 2016, the Commission decided to close the infringement procedure.

3. GROUNDS FOR INITIATING AND EXTENDING THE PROCEDURE

3.1. The prolongation of the initial Convention between Toremar and Italy

3.1.1. Observance of Altmark and existence of aid

(103) In its 2011 Decision, the Commission took the preliminary view that the definition of the public service obligations had not been sufficiently clear and hence did not allow the Commission to definitely conclude whether it contained manifest errors. In particular, the Commission did not at that stage have a complete view on the actual obligations imposed on Toremar for the operation of the routes in question as compared to the services offered by competitors on some of those routes.

(104) The Commission took the preliminary view that the second condition of the Altmark judgment (42) was observed as the parameters at the basis of the calculation of the compensation had been established in advance and observed the transparency requirements. In particular, the Commission noted that these parameters are described in the initial Convention (for compensation concerning the year 2009) and in the CIPE Directive (for compensation from 2010 onwards).

(105) The Commission however considered that the third condition of the Altmark judgment did not seem to have been observed and that the operators might have been over-compensated for the performance of the public service tasks. In particular, the Commission expressed doubts whether the risk premium of 6,5 %, which applies from 2010 onwards, reflects an appropriate level of risk since prima facie Toremar did not seem to assume the risks normally borne in the operation of such services.

(106) The Commission also took the preliminary view that the fourth Altmark condition was not observed inasmuch as the prolongation of the initial Convention had not been tendered out. The Commission moreover noted that it had not received any evidence to support the argument that Toremar in fact provided the services at stake at the least cost to the community.

(107) In the 2011 Decision, the Commission therefore came to the preliminary conclusion that the public service compensation paid to Toremar during 2009-2011 constitutes State aid within the meaning of Article 107(1) TFEU. In addition, the Commission took the view that this aid should be considered as new aid.

3.1.2. Compatibility

(108) In the 2011 Decision, the Commission took the preliminary view that the public service compensation for the years 2009-2011 falls outside the scope of both the 2005 SGEI Decision (43) and the 2005 SGEI Framework (44). The Commission therefore assessed this measure directly under Article 106(2) TFEU and found it had doubts on whether the applicable compatibility conditions were fulfilled.

(109) In the 2012 Decision, the Commission noted that on 31 January 2012, a new SGEI package consisting of the 2011 SGEI Decision (45) and 2011 SGEI Framework (46) had entered into force. The Commission however took the preliminary view that the public service compensation under the prolongation of the initial Convention could not be considered compatible with the internal market and exempted from the notification requirement under the 2011 SGEI Decision.

(110) The 2010 Law provided for the prolongation of the initial Convention from 30 September 2010 up to the end of the privatisation process. As a result, the compensation received by the company as of 1 October 2010 until its privatisation could be assessed on the basis of the 2011 SGEI Framework which, according to its paragraph 69, also applies to aid granted before 31 January 2012 (see recitals (283) and (284)).

3.2. Toremar’s privatisation

(111) At the moment the 2012 Decision was adopted, the Commission had doubts that the tender procedure for the sale of Toremar had been sufficiently transparent and unconditional so as to ensure that the sale took place at market price.

(112) In the 2012 Decision, the Commission considered that certain conditions imposed in the privatisation might have restricted the number of bidders or influenced the sale price. The Commission restated its established practice concerning sales of assets of State owned undertakings by the State (or in this case imputable to the State): non-economic considerations which a private seller would not make, such as public policy reasons, employment requirements or regional development, point to the existence of State aid if they impose onerous obligations on the potential buyer and are therefore liable to reduce the sale price.

(113) Likewise, on the basis of the information available at that stage, the Commission considered that the so called technical and financial requirements as imposed in the Toremar tender effectively disrupted the tender by restricting potential bidders to existing maritime companies, given that in the present case, the company itself, endowed with the public service contract, was put up for sale (47).

(114) For the above reasons, the Commission preliminarily concluded that the privatisation procedure of Toremar had not been sufficiently transparent and unconditional so as to ensure by itself that the sale took place at market price. The Commission could therefore at that stage not exclude that an economic advantage was conferred to the buyer.

(115) The Commission also considered, on the basis of the information available when issuing its 2012 Decision, that any aid that might have arisen in the course of the privatisation process would be incompatible.

3.3. The new service contract between the Region of Tuscany and Moby/Toremar

3.3.1. Observance of Altmark and existence of aid

(116) In the 2011 and 2012 Decisions, the Commission took the preliminary view that the compensation paid to Toremar (and its acquirer, Moby) did not fulfil the criteria laid down in the Altmark judgment and therefore amounted to aid within the meaning of Article 107(1) TFEU. The Commission came to this conclusion given that: (i) competitors who seemed to be offering similar services were present at least on certain routes operated by Toremar and there was no sufficient information submitted that would enable the Commission to conclude on whether the SGEI reflected a real public service need which could not be met by market forces alone; (ii) the calculation of the compensation pursuant to the CIPE Directive appeared to have resulted in the operator being overcompensated for the provision of the public service for the same reasons as expressed in the 2011 Decision; and (iii) the fourth criterion of the Altmark judgment was seemingly not observed, given that the public service was tendered out on the condition that the successful bidder would acquire the whole Toremar company. The Commission took the preliminary position that had the public service contract been tendered out without the purchase requirement, it would have resulted in a lower cost for the community.

3.3.2. Compatibility

(117) With respect to the compatibility of the compensation to Toremar, the Commission noted that, on the basis of the information provided by Italy, the 2011 SGEI Decision appeared not to be applicable for this service contract because of its long (12 years) entrustment period. In any event, the Commission could at that stage not conclude on the application of the 2011 SGEI Decision because the signed contract had not yet been provided. The Commission did not receive any information (e.g. number of passengers transported in the 2 financial years preceding the entrustment) to examine the remaining compatibility conditions of the 2011 SGEI Decision. The Commission then assessed the aid based on the 2011 SGEI Framework but found that it had doubts on whether the compatibility conditions of that Framework were fulfilled and invited Italy to demonstrate that this was the case.

3.4. The berthing priority

(118) In the 2011 Decision, the Commission took the preliminary view that to the extent that the berthing priority is not remunerated, the measure is a regulatory advantage, which does not involve any transfer of State resources and cannot therefore qualify as State aid. Alternatively, if the berthing priority is remunerated, the Commission considered that to the extent Toremar provides a genuine SGEI and that this priority is only granted in relation to routes covered by the SGEI, it would not result in an additional economic advantage since it would be intrinsic to the provision of the SGEI. Nevertheless, the Commission invited Italyand third parties to provide further information on this measure.

(119) Since it had raised doubts on the legitimacy of the SGEI mission, the Commission could not conclude on the compatibility of the measure if it were to be aid.

3.5. The measures laid down by the 2010 Law

(120) In the 2011 Decision, the Commission took the preliminary view that all measures laid down by the 2010 Law constituted State aid in favour of the companies of the former Tirrenia Group, including Toremar. These included: (1) the possible use for liquidity purposes of the funds earmarked for the upgrade of the ships; (2) the fiscal exemptions related to the privatisation process; and (3) the possible use of FAS resources. The Commission invited Italy to clarify if and how each of these measures was necessary to provide the public service.

(121) The Commission also took the preliminary view that these measures likely constituted operating aid reducing the costs that Toremar, and the other companies of the former Tirrenia Group, would otherwise have to bear themselves and thus these measures should be considered as incompatible with the internal market.

4. COMMENTS FROM ITALY

4.1. On the public service obligations and the competitive environment

(122) Italy provided a list of the routes (supported by the corresponding legal documentation) operated by Toremar that are subject to public service obligations, including the seasonal frequency and timetables, the competitive environment and the reasons leading to these public service obligations.

(123) As regards the existence of a genuine SGEI, Italy notes that the above public service obligations were laid down in order to maintain the territorial continuity and the connection of the mainland with the islands. This service also contributes to the economic development of the islands and the facilitation of intermodal transportation, while at the same time it guarantees the essential mobility needs of the islands’ communities throughout the year and ensures that the constitutional right to territorial continuity is respected.

(124) As far as the competitive environment is concerned, Italy submitted information showing that Toremar is the only operator sailing most of the routes throughout the year. Although there has been some competition over the years, especially on the Piombino – Portoferraio route (Line A2) with the participation of Moby, Italy is of the view that the service offered by Toremar cannot be substituted and that the guarantee for territorial continuity could not have been achieved by the market forces alone.

4.2. On the privatisation of Toremar

4.2.1. On the sale price of Toremar

(125) According to Italy, the privatisation of Toremar involved the transferring of the entire share capital of the company via a public tender procedure launched by the Region of Tuscany. This procedure additionally entailed the simultaneous entrustment of maritime public services in the Tuscany archipelago for a period of 12 years, in order to maintain territorial continuity.

(126) The Region of Tuscany commissioned an independent expert evaluation (see recitals (67) and (68)) to assess the legal and economic issues of Toremar’s sale. According to Italy, this evaluation (‘the Fidi report’) sets out clearly and concisely the procedures followed to determine the market value of Toremar’s share capital.

4.2.2. On the transparent and non-discriminatory character of the procedure

(127) Italy stresses that the procedures were conducted in compliance with the legal principles of transparency and non-discrimination. It defended that all 11 parties that expressed an interest were given the relevant information necessary to submit their bid through access to a data room, where all documentation was provided. Italy further states that at this stage of the procedure it did not have any control over the potential tenderers, as the replies to the call for an expression of interest were not binding. Competitors were also granted the right to submit questions and receive replies from the contracting authority.

(128) Concerning the Commission’s doubts on the technical and financial requirements imposed on bidders for the participation in the tender, Italy argues that such requirements are not discriminatory but are based on the need to select an operator able to provide specific know-how in view of the quantitative and qualitative development of the public services required. This is more pertinent in the context of a tender such as the one at issue in these proceedings, where the sale of Toremar was combined with the conclusion of a new public service contract (48). According to Italy, the provision of technical and financial requirements in the tender does not run counter to the maximum opening of the tender to all potential bidders, but it is a direct and necessary consequence of this particular tender structure.

(129) As concerns specifically the assets transferred and the obligation to maintain employment levels, Italy stresses that the sale of Toremar did not include any obligation concerning employment levels.

4.3. On the compliance of the prolongation of the initial Convention and of the new public service contract with the Altmark conditions

(130) Italy argues that the four Altmark criteria are complied with both for the period 2009-2011 and for the period 2012-2024 for the following reasons: — Toremar has been effectively entrusted with the fulfilment of public service obligations. The prolongation of the initial Convention, as well as the new public service contract clearly set out the obligations regarding the routes to be served, the time schedule, the sailing frequencies, the quality of the vessels to be used and the quality of the service in general, the tariff obligations with respect to the ports served and the obligations regarding passengers’ rights in line with Union legislation. Therefore, Italy considers that the public service obligations are clearly defined and that the first Altmark criterion is complied with; — The parameters on the basis of which the compensation was calculated have been defined in advance in an objective and transparent manner. These are explained in detail in the CIPE Directive that applies for the compensation granted as from 2010 onwards, and have been also applied in the new public service contract (and annexes thereto). Therefore, Italy considers that these parameters were established in advance in an objective and transparent manner and that the second Altmark criterion is respected; — With reference to the third Altmark criterion, the compensation, both in the prolongation of the initial Convention, and in the new public service contract, does not exceed what is necessary to cover the costs arising from the discharging of the public service obligations. This clearly emerges from the company’s income statements, which show a loss of EUR 372 008 for the 3-year period 2009-2011 and a loss of EUR 353 960 for the 5-year period 2012-2016. In addition, due to the rebalancing mechanism introduced in Article 26 of the new public service contract, measures have been taken to ensure that any deviations are corrected and thus overcompensation is avoided; — Italy considers that also the fourth Altmark criterion is fulfilled. During the 2-year period 2010-2011, the Region of Tuscany was monitoring the company’s efficiency, whereas under the period covered by the new public service contract, the choice of the company in charge of the fulfillment of the public service obligations was made through a tender procedure in compliance with Union rules.

4.4. On the 9,95 % rate of return used for 2010 and on the 6,5 % risk premium laid down in the CIPE Directive as of 2010

(131) In the 2011 Decision, it is mentioned that that the rate of return on invested capital for 2010 was set at 9,95 % before taxes. Italy was asked to justify this given that the CIPE Directive provides that the risk premium of 6,5 % would be used to determine the return on capital using the WACC formula (see recital (46)).

(132) Italy submits that the reference to the 9,95 % rate relates to the draft new Conventions/Public Service Contracts that would be put up for tender with the companies themselves and signed with the buyers upon finalisation of the privatisation of each of the companies of the Tirrenia group (see recital (27)).

(133) Italy also stresses that, because the tender amount of compensation (i.e. the basis for the invitation to tender) was capped by the 2009 Law (49), it was decided indeed to simplify the calculation of the compensation by applying a flat rate return on capital. In particular, for the period covering the prolongation of the initial Convention (i.e. 2010-2011), the flat rate return on capital has been de facto calculated at 6,9 %. As from 2012, under the new public service contract with Moby/Toremar a flat return on capital of 6,5 % has been applied. Italy has argued that these flat rate returns on capital are still commensurate with the risks involved and that in any event they are below the 9,95 % that was initially communicated to the Commission.

(134) Italy also explains that applying the full methodology as laid down in the CIPE Directive might have resulted in a return on capital that could have exceeded 6,5 %. For this reason, Italy considers that its simplified approach is conservative and does not allow in principle for higher compensation for Moby/Toremar than was established under the CIPE Directive.

4.5. On the berthing priority

(135) Italy refers to Article 19-ter, paragraph 21, of the 2009 Law, which entitles Toremar to keep the berthing already allocated to it and the priority in the allocation of new slots in line with national law (see above recital (90)).

(136) Italy argues that no State resources were foregone through the allocation of the berthing priority. According to Italy, all ferry operators pay regular fees to the relevant port authorities for berthing. Italy also claims that this berthing priority has been applicable only to the public service routes, and that Toremar and later Moby/Toremar, did not and do not pay any additional fee for this berthing priority, as ports would give them the first choice of berthing slots even in the absence of a formal berthing priority on account of their public service mission.

(137) Italy considers that the berthing priority would not confer a meaningful advantage to the companies of the former Tirrenia Group, including Toremar and its acquirer Moby. In particular, they argue that in practice the berthing priority is only applied in very limited circumstances. The size of most of the ports and the advance scheduling of arrivals and departures ensures that in normal circumstances – barring any delays or extreme weather conditions – there would be no overlap in the use of specific berths by different operators. Additionally, since Toremar and Moby operate their services all year long (contrary e.g. to operators who operate only in the high season), it would be natural for ports to give them first choice of berthing slots even in absence of a formal berthing priority. For these reasons, Italy considers that the berthing priority cannot have awarded any meaningful advantage to Toremar and Moby.

4.6. On the measures laid down by the 2010 Law

(138) As regards the measures laid down by the 2010 Law (see above recitals (91) and (92)), Italy submits that Toremar has been allocated and effectively used the financial resources already committed by Law 102/2009 for the initial purpose. In particular, Toremar used EUR 1 617 300 to upgrade its fleet in order to respect international safety standards (i.e. EUR 808 650 for the upgrade of the vessel Aethalia and EUR 808 650 for the upgrade of the vessel Liburna). It is also submitted that these funds have not been used for liquidity purposes.

(139) With regard to the fiscal exemptions related to the privatisation process, Italy argues that as regards corporate income tax, the measure has not been applied since the transfers of Caremar, Saremar and Toremar to the regions were made free of charge. Therefore, in the absence of any remuneration, Article 86(1)(a) of the Consolidated Income Tax Law concerning capital gains in the event of asset transfers against payment does not apply. With respect to VAT, Italy notes that the transfers of Caremar, Saremar and Toremar constitute transactions which are exempt from VAT under Article 10(1)(4) of Presidential Decree No 633 of 26 October 1972. With respect to indirect taxes other than VAT, Italy emphasises that the exemption provided for by the 2010 Law was designed with a view to administrative simplification. From the taxation perspective, its effects can be regarded as negligible and of little impact in relation to taxes which are charged at flat rates. More specifically, it concerns the registration duty (EUR 168 per document), land registry and mortgage registration fees (EUR 168 each) and stamp duty (EUR 14,62 for four sides).

(140) Concerning the FAS resources, Italy submits that Toremar has not received any benefit thereof. In addition, they clarified that the FAS resources were not used to give an additional compensation to the companies of the former Tirrenia Group, including Toremar. Instead, these resources were made available to supplement the budget appropriations set up for the payment of the public service compensations to the companies of the former Tirrenia Group, in case those budget appropriations proved to be insufficient. Italy notes that Article 1, paragraph 5-ter of Decree Law 125/2010 enabled the regions to use the FAS resources to fund (part of) the regular public service compensation and thereby ensure continuity of the maritime public services. Moreover, Italy clarifies that, under Article 26 of Decree Law 185/2008, EUR 65 million for each of the years 2009, 2010 and 2011 were earmarked to the Tirrenia group and EUR 195 million were accordingly drawn from the FAS resources. Those funds were then transferred to the account of the Ministry of Transport earmarked for the payment of the public service compensation to the companies of the former Tirrenia Group (Tirrenia, Siremar, Caremar, Toremar and Saremar). Therefore, this measure would merely concern an allocation of resources in Italy’s budget for payment of the public service compensations.

4.7. On the compliance of the prolongation of the initial Convention and of the new public service contract with the 2011 SGEI Decision

(141) Even if Italy considers that the public service compensation paid under the new public service contract to Toremar does not constitute State aid, it has also argued why this measure would comply with the 2011 SGEI Decision, if it were aid.

(142) In its reply, Italy provides the average annual traffic during the period 2010-2016, based on the routes altogether. On this basis, Italy presented passenger traffic data to demonstrate that the threshold of 300 000 passengers as laid down in Article 2(1)(d) of the 2011 SGEI Decision has not been breached on any of the routes operated by Toremar until the end of 2011 and as from 2012 by Moby/Toremar.

4.8. On the compliance of the initial Convention and of the new public service contract with the 2011 SGEI Framework

(143) Italy further argues that no overcompensation has taken place in favour of Moby/Toremar and that the conditions of the 2011 SGEI Framework are fulfilled.

(144) In order to justify the above, Italy provided information showing the amounts of return on invested capital for 2010-2017 and the methodology used to verify that no overcompensation exists for the services provided by Toremar and Moby/Toremar, the costs and revenues per route for 2010-2017 and the depreciation period of the fleet for 2009-2017 (50).

(145) In addition, Italy submits that Toremar (and Moby/Toremar) have not carried out any commercial activities during the period 2009 to date.

5. COMMENTS FROM MOBY/TOREMAR

5.1. On the public service obligations and the competitive environment

(146) Moby/Toremar argue that the new public service contract and its annexes define concretely the public services obligations concerning the maritime routes involved. These obligations concern among others the quality and characteristics of the service (journeys to be made, timetables, service conditions) and the applicable tariffs.

(147) In replying to the complainant’s allegation of a monopoly being created on the Piombino – Elba island routes following the merger between Toremar and Moby, the latter parties point to the authorisation provided by the Italian National Competition Authority of the said merger by means of Decision No 22622 of 19 July 2011, subject to compliance with certain conditions aimed precisely at ensuring the existence of competition on that route.

(148) Further, Moby/Toremar submit that the routes in question could not be served without public support and the market alone could not provide the services with the minimum requirements entailed by the public contract.

5.2. On the privatisation of Toremar

5.2.1. On the price paid for Toremar’s shares

(149) Moby/Toremar submit that the privatisation of Toremar does not entail any State aid elements, given that the price agreed was certified by an independent evaluator.

5.2.2. On the transparent and non-discriminatory character of the procedure and on the bundling of the assets of Toremar with a new public service contract

(150) In replying to the Commission’s preliminary position in the 2012 Decision that the technical and financial requirements of the tender may have limited the number of competitors potentially interested to submit a bid, Moby/Toremar argue that these requirements were indeed necessary, considering the particular structure of Toremar that resulted from it having been part of the Tirrenia group.

(151) According to Moby/Toremar, Toremar did not have all the facilities to ensure alone the maritime services required and in the past it has always used the services of the Tirrenia group, in particular services of a commercial nature (e.g. coordination of the activities of the port ticket offices, call centres and communication), of technical nature (e.g. management of information systems) and certain more specialised services (e.g. supply management).

(152) Therefore, Moby/Toremar argue that the tender as designed could not be held discriminatory and that the request of the Region of Tuscany that the buyer of Toremar is already active in the maritime passenger transport sector is prompted by industrial policy considerations to ensure the service continuity.

(153) Moby/Toremar submit that, if the service contract were to be awarded without the sale of Toremar, the latter would not have any further reason to continue functioning nor would it be easy to resell it on the market, given the specificity of the fleet. Further, according to the parties, the Region of Tuscany would probably have to pay a higher compensation amount for the service, considering that the operator would have needed to equip itself with the necessary vessels and personnel. Moreover, the Region of Tuscany would have had to bear the costs of the decommissioning of the Toremar fleet and of the management and liquidation of the company. Therefore, bundling the assets of Toremar with a new public service contract also minimises the costs of State intervention.

(154) Finally, Moby/Toremar, in replying to the complainant’s allegation that the tender procedure conferred an advantage on Moby, refer to the proceedings at national level (see Section 2.3.2.3), which upheld the result of the tender procedure concerning the privatisation of Toremar and the award of the service contract.

5.3. On the compliance of the new public service contract with the Altmark conditions

(155) Moby/Toremar submit that the new public service contract satisfies all the Altmark criteria.

(156) According to the parties, the public service obligations are clearly defined and the parameters of the compensation are in advance established in an objective and transparent manner. Moreover, by virtue of the mechanism for awarding the service (discount auction) and the monitoring system established, according to which Toremar obtains the compensation only for the activities actually performed, this compensation does not exceed what is necessary to cover the costs arising from the fulfillment of public service obligations.

(157) Finally, Moby/Toremar argue that the choice of the company in charge of the fulfillment of the public service obligations has been carried out through a tender procedure in compliance with Union law.

5.4. On the prolongation of the initial Convention between Toremar and Italy

(158) Moby/Toremar refer to Commission Decision 2005/163/EC (‘the 2004 Decision’), by which the Commission had declared the compensation granted by Italy to the Tirrenia Group companies, other than Tirrenia itself, to be partially compatible with the internal market, partially compatible conditional upon the respect of a number of undertakings by Italy, and partially incompatible with the internal market.

(159) They argue that on the basis of that decision the Commission had confirmed the compatibility of the initial Convention until its expiry date at the end of 2008 and that its prolongation for the years 2009 to 2011 constitutes simply a continuation of a compatible measure, hence an existing aid measure. Such prolongation does not contain any substantial changes and it was necessary for the organisation of the privatisation procedure of the companies belonging to the Tirrenia Group.

(160) Moby/Toremar further submit that even if the Commission were to consider that Toremar received State aid in the past through the prolongation of the initial Convention, this shall be negated by the fact that Toremar was sold under a public procurement procedure, thus on market conditions to Moby, at a price that included among others an assessment of that aid element. As a result, and on the basis of settled case law (51), the prolongation of the initial Convention is not State aid relevant.

6. ASSESSMENT

6.1. Existence of aid within the meaning of Article 107(1) TFEU

(161) According to Article 107(1) TFEU ‘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’.

(162) The criteria laid down in Article 107(1) TFEU are cumulative. Therefore, in order to determine whether the notified measures constitute State aid within the meaning of Article 107(1) TFEU, all the above-mentioned conditions need to be fulfilled. Namely, the financial support should: (a) be granted by a Member State or through State resources, (b) favour certain undertakings or the production of certain goods, (c) distort or threaten to distort competition, and (d) affect trade between Member States.

(163) The Commission notes that the berthing priority, which only applies to the public service routes, is inextricably linked with the performance of the SGEI by Toremar and its acquirer Moby. Therefore, this measure will be assessed jointly with the public service compensation granted to these companies (see Sections 6.1.1 and 6.1.2).

(164) Furthermore, the Commission notes that the new public service contract between Italy and Moby/Toremar should be assessed jointly with the privatisation of Toremar. Such joint assessment is appropriate because in essence Italy organised the new public service contract whereby the winning bidder had to acquire the entire share capital of Toremar in order to discharge the public service obligations laid down in that public service contract.

6.1.1. The prolongation of the initial Convention between Toremar and Italy

6.1.1.1. State resources

(165) Toremar was entrusted by Italy with the operation of maritime routes as detailed by the initial Convention, as prolonged. The initial Convention was concluded with the State and the resulting public service compensation for Toremar is paid by the State from its own budget. Therefore, the public service compensation to Toremar is imputable to the State and is given through State resources.

(166) The Commission takes note that, according to Italy, all ferry operators pay regular fees to the relevant port authorities for berthing but that Toremar did not pay any additional fee for the berthing priority. Nevertheless, the Commission considers that in principle Italy could have chosen to impose an additional fee for the berthing priority and that by not doing so, it has foregone State revenues. Furthermore, since the berthing priority is granted by law (see recital (90)) it is imputable to the State.

6.1.1.2. Selectivity

(167) In order to be qualified as State aid, a measure must be selective. The public service compensation for the provision of the maritime services in question is only granted to Toremar, thus it is selective. Since the berthing priority was only granted to the companies of the former Tirrenia Group, including to Toremar, it is also selective.

6.1.1.3. Economic advantage

(168) The Commission recalls that public service compensations granted to a company may not constitute an economic advantage under certain strictly defined conditions.

(169) In particular, in its Altmark judgment (52), the Court of Justice held that where a State measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advantage and the measure thus does not have the effect of putting them in a more favourable competitive position than the undertakings competing with them, such a measure is not within the scope of Article 107(1) TFEU.

(170) However, the Court of Justice also made clear that for such public service compensation to escape qualification as State aid in a particular case, the four cumulative criteria (the ‘Altmark criteria’), summarised below, must be satisfied: — the recipient undertaking must actually have public service obligations to discharge and these obligations must be clearly defined (‘Altmark 1’); — the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner (‘Altmark 2’); — the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations (‘Altmark 3’); — where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations (‘Altmark 4’).

(171) The Commission specified how it applies the Altmark criteria in its Communication on the application of State aid rules to compensation granted for the provision of services of general economic interest (the ‘SGEI Communication’) (53).

(172) Given that the Altmark criteria have to be complied with cumulatively, non-observance of either one of these criteria would lead the Commission to the conclusion that the measure under assessment provides an economic advantage to the beneficiary. The Commission will then first assess observance of Altmark 4.

(173) Altmark 4 provides that the compensation must be the minimum necessary in order for it not to qualify as State aid. This criterion is deemed to be fulfilled if the recipient of the public service compensation has been chosen following a tender procedure, which allows for the selection of the tenderer capable of providing the services at the least cost to the community or, failing that, the compensation has been calculated by reference to the costs of an efficient undertaking.

(174) For none of the prolongations of the initial Convention in the period 1 January 2009 until 1 January 2012 Toremar was selected following a public tender procedure. Italy merely prolonged the system already in force thereby entitling the pre-established operator to continue receiving compensation for the discharge of the public service obligations.

(175) Moreover, Italy has not provided the Commission with any indication that the level of compensation has been determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations. Italy’s argument that the Region of Tuscany was monitoring Toremar’s efficiency during the period 2010-2011 is not sufficient for compliance with this criterion, as it does not show whether the costs actually incurred by Toremar in the provision of its public service obligations were in line with those of a typical undertaking, well run and adequately provided with means of transport.

(176) The Commission therefore concludes that Altmark 4 has not been complied with in the present case.

(177) Given that the four Altmark conditions are not cumulatively observed in the present case, the Commission concludes that the compensation for the operation of maritime routes under the prolongation of the initial Convention provided Toremar with an economic advantage.

(178) With respect to the berthing priority, the Commission first recalls that the Italian competition authority AGCM has at least on two occasions considered that this measure has economic value (54). Nevertheless, Toremar does not pay any fee for the berthing priority (see recital (136)). Furthermore, the Commission observes that the berthing priority has at least in theory the potential to lower the operator’s costs (e.g. because the guaranteed berthing could reduce waiting times in ports and hence result in lower fuel costs) or increase its revenues (e.g. because some timings possibly attract more demand from passengers). Indeed, to the extent the berthing priority allows for a faster docking procedure, users of the ferry service may prefer the ferry operator that benefits from this measure. Even if these effects would only materialise in limited circumstances or would be relatively small, the berthing priority could nevertheless constitute an economic advantage for Toremar.

6.1.1.4. Effect on competition and trade

(179) When aid granted by a Member State strengthens the position of an undertaking compared to other undertakings competing in intra-Union trade, the latter must be regarded as affected by that aid (55). It is sufficient that the recipient of the aid competes with other undertakings on markets open to competition (56).

(180) In the present case, the beneficiary operates in competition with other undertakings providing maritime transport services in the Union, in particular since the entry into force of Council Regulation (EEC) No 4055/86 (57) and the Maritime Cabotage Regulation, liberalising the market of the international maritime transport and maritime cabotage, respectively. The fact that on some routes Toremar was at that time the only operator does not mean that other (international) operators could not be interested to offer similar maritime transport services. Therefore, the compensation for the operation of maritime routes under the prolongation of the initial Convention is liable to affect Union trade and distort competition within the internal market. For the same reasons that conclusion also holds for the berthing priority.

6.1.1.5. Conclusion

(181) Since all criteria laid down in Article 107(1) TFEU are fulfilled, the Commission concludes that both the public service compensation paid on the basis of the successive prolongations of the initial Convention and the berthing priority for the public service routes constitutes State aid to Toremar.

6.1.1.6. New or existing aid

(182) The Commission first notes that the compensation paid to Toremar for the operation of maritime public service obligations until the end of 2008 will not be assessed in this Decision. The assessment of that compensation, and whether or not it can be classified as existing aid on the basis of Article 4(3) of the Maritime Cabotage Regulation, is the subject of a separate Commission decision (58).

(183) According to Article 1(c) of Council Regulation (EU) 2015/1589 (59), new aid means ‘all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid’. Furthermore, Article 108(3) TFEU provides that plans to grant or alter existing aid must be notified, in due time, to the Commission and may not be implemented until the procedure has led to a final decision (60). In line with the position of the European Courts (61), the Commission considers that amending (i.e. prolonging) the duration of an aid scheme that had a clear expiry date (i.e. 31 December 2008) is sufficient to make it a new aid irrespective of whether or not other characteristics of the measure were changed.

(184) For the above reasons, the Commission considers that regardless of the fact that the compensation awarded to Toremar up until end 2008 has been classified as existing aid (62), the public service compensation paid on the basis of the prolongation of the initial Convention should be considered as new aid. This conclusion also holds for the berthing priority.

6.1.2. The award of the new public service contract bundled with Toremar’s business to Moby/Toremar

(185) In order to conclude on whether the award of the new public service contract bundled with Toremar’s business constitutes an advantage to Moby/Toremar within the meaning of Article 107(1) TFEU, the Commission must assess observance of the Altmark criteria (see recital (170)).

6.1.2.1. Altmark 1

(186) The Commission recalls that there is no uniform and precise definition of a service that may constitute an SGEI under Union law, either within the meaning of the first Altmark condition or within the meaning of Article 106(2) TFEU (63). Paragraph 46 of the SGEI Communication is worded as follows: ‘In the absence of specific Union rules defining the scope for the existence of an SGEI, Member States have a wide margin of discretion in defining a given service as an SGEI and in granting compensation to the service provider. The Commission’s competence in this respect is limited to checking whether the Member State has made a manifest error when defining the service as an SGEI and to assessing any State aid involved in the compensation. Where specific Union rules exist, the Member States’ discretion is further bound by those rules, without prejudice to the Commission’s duty to carry out an assessment of whether the SGEI has been correctly defined for the purpose of State aid control.’

(187) National authorities are therefore entitled to take the view that certain services are in the general interest and must be operated by means of public service obligations to ensure that the public interest is protected when market forces do not suffice to guarantee that they are provided at the level or conditions required.

(188) In the field of cabotage, detailed Union rules governing public service obligations have been laid down in the Maritime Cabotage Regulation and, for the purpose of examining potential State aid to undertakings engaged in maritime transport, in the Community guidelines on State aid to maritime transport (‘the Maritime Guidelines’) (64).

(189) Article 4(1) of the Maritime Cabotage Regulation provides: ‘A Member State may conclude public service contracts with or impose public service obligations as a condition for the provision of cabotage services, on shipping companies participating in regular services to, from and between islands. Whenever a Member State concludes public service contracts or imposes public service obligations, it shall do so on a non-discriminatory basis in respect of all Community shipowners.’

(190) Article 2(3) of the Maritime Cabotage Regulation sets out that a public service contract may cover: transport services satisfying fixed standards of continuity, regularity, capacity and quality, additional transport services, transport services at specified rates and subject to specified conditions, in particular for certain categories of passengers or on certain routes and adjustments of services to actual requirements.

(191) In accordance with Section 9 of the Maritime Guidelines, ‘public service obligations may be imposed or public service contracts (PSCs) may be concluded for the services indicated in Article 4 of Regulation (EEC) No 3577/92’, i.e. scheduled services to, from and between islands.

(192) It results from established case-law that public service obligations may only be imposed if justified by the need to ensure adequate regular maritime transport services which cannot be ensured by market forces alone (65). The Communication on interpretation of the Maritime Cabotage Regulation (66) confirms that ‘it is for the Member States (including regional and local authorities where appropriate) and not the shipowners to determine which routes require public service obligations. In particular, public service obligations may be envisaged for regular (scheduled) island cabotage services in the event of market failure to provide adequate services’. Moreover, Article 2(4) of the Maritime Cabotage Regulation defines public service obligations as obligations, which ‘the ship-owner in question, if he were considering his own commercial interest, would not assume or would not assume to the same extent or under the same conditions’.

(193) In line with the case-law (67), in order to examine whether the first Altmark criterion is met, the Commission will carry out a three-step assessment to verify whether there is a real public service need (steps one and two) and whether it was necessary and proportional (step three). The Commission will assess: (1) Whether there was user demand; (2) Whether that demand was not capable of being satisfied by the market operators in the absence of an obligation imposed by the public authorities (existence of a market failure); (3) Whether simply having recourse to public service obligations was insufficient to remedy that shortage (least harmful approach).

(1) User demand

(194) In this case, Toremar was entrusted with the provision of mixed services (passenger and vehicles) on multiple lines presented in Table 3. The public service obligations of Toremar concerned the ports served, the type and capacity of the vessels assigned to the maritime connections operated under the public service regime, the frequency of service and the maximum fares to be charged.

(195) As described in recital (123), Italy has imposed the public service obligations laid down in the new Convention mainly to (i) ensure the territorial continuity between the mainland and the islands and (ii) contribute to the economic development of the islands concerned, through regular and reliable maritime transport services. The Commission considers that these are indeed legitimate public interest objectives.

(196) Historically, the objectives pursued by Italy have not been achieved through the inter