1999/719/EC: Commission Decision of 30 March 1999 on State aid which France is planning to grant as development aid in the sale of two cruise vessels to be built by Chantiers de l'Atlantique and operated by Renaissance Financial in French Polynesia (notified under document number C(1999) 903) (Text with EEA relevance) (Only the French text is authentic)
Date: 1999-03-30
Institutions: European Commission
Subjects: France, State aid, aid to industry, development aid, shipbuilding, tax relief

13.11.1999

EN

Official Journal of the European Communities

L 292/23

COMMISSION DECISION

of 30 March 1999

on State aid which France is planning to grant as development aid in the sale of two cruise
vessels to be built by Chantiers de l’Atlantique and operated by Renaissance Financial in French
Polynesia

(notified under document number C(1999) 903)

(Only the French text is authentic)

(Text with EEA relevance)

(1999/719/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

II. DESCRIPTION OF THE AID

Having regard to the Treaty establishing the European
Communities, and in particular
subparagraph of
Article 93(2) thereof,

the first

Having regard to Council Directive 90/684/EEA of 21
December 1990 on aid to shipbuilding (1), as prolonged by
Regulation (EC) No 2600/97 (2), and in particular Article 4(7)
thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above,

Whereas:

I. PROCEDURE

By letter dated 4 February 1998,
France notified the
Commission of the aid which it planned to grant for two
cruise vessels that were to be built in Chantiers de l’Atlantique.
By letter dated 20 march 1998, France
furnished the
Commission with supplementary information.

the Commission informed France of

By letter dated 18 June 1998 and a corrigendum dated 30 July
1998,
its decision to
initiate the procedure laid down in Article 93(2) of the Treaty
in respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communities (3).
The Commission invited interested parties to submit
their
comments on the aid.

The Commission has received no comments from interested
parties.
furnished the Commission with its
comments by letters dated 9 July 1998, 31 August 1998 and
25 February 1999.

France has

(1) OJ L 380, 31.12.1990, p. 27.
(2) OJ L 351, 23.12.1997, p. 18.
(3) OJ C 307, 7.10.1998, p. 6.

Development aid to French Polynesia, hereinafter referred to as
(cid:145)FPO(cid:146), is to be granted in the form of tax concessions related to
the purchase of two cruise vessels, which are to be built in
Chantiers de l’Atlantique. The aid was notified in accordance
with Article 4(7) of Directive 90/684/EEA, hereinafter referred
to as (cid:145)the Shipbuilding Directive(cid:146).

The aid is to be granted under a fiscal scheme (4) allowing tax
concessions on investments in the French departments and
territories. The Commission approved the scheme by letter of
27 January 1993 (5), in which it stated that the application of
the scheme was subject to the Community rules, guidelines
and frameworks on aid for various purposes and for various
sectors.

The cruise vessels are to be sold to investors who are in a
financial position to take advantage of
the tax exemption
offered to investors who reinvest their profits in the vessels.
the aid
The tax relief amounts
intensity. The group of
lease the vessels to
Renaissance Financial, hereinafter referred to as (cid:145)RF(cid:146). RF is
obliged to run the vessels in FPO for at least five years (that is,
for seven years after the placing of the order). Further, the
to the investors to buy the
company has committed itself
vessels at the end of that period. The cruise vessels have a
contractual value of FRF [(cid:133)] (*) each.

to 41,6 %, which equals
investors will

RF is a subsidiary of
the American company, Renaissance
Cruise Inc. RF was established for the purpose of purchasing
and operating the two vessels, and at
the
notification it was domiciled in Paris. France argued that in the
absence of the aid the operator could not acquire the vessels at
normal market conditions, because the normal
interest rate
would be too high to allow their operation in FPO. Despite the

the time of

(4) La loi du 11 juillet 1986 modifiØe, relative aux investissements

productifs dans les dØpartements et territoires d’Outre-Mer.

(5) SG(93) D/1300.
(*) Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

L 292/24

EN

Official Journal of the European Communities

13.11.1999

advantage derived from the aid, the forecast budget for the
vessels will balance only if capacity utilisation is more than
75 %. In fact, in the first five years an annual deficit of FRF 50
million is expected. The French authorities conclude that the
project is not viable without the aid.

might visit the islands, which would mainly profit from the
from the
money spent by visiting tourists, and,
positive impact on local employment.

inter alia,

France further claims that the regional authorities in FPO are
seeking to develop tourism, and cruises in particular. The aim
to increase the annual growth rate of tourism from the current
3,2 % to approximately 9 % in the year 2010. It argues that the
project is especially suitable for pursuing this goal. The two
vessels, with 350 cabins each, will treble the capacity of cruise
trips by the end of 1999, and it is claimed that the local
authorities in FPO have given a very favourable reception to
the project.

The Commission decided to initiate the procedure provided for
in Article 93(2) of the Treaty. The Commission was doubtful
that the development aid was compatible with the conditions
laid down in Article 4(7) of the Shipbuilding Directive.

According to Article 4(7) of the Shipbuilding Directive, aid
granted as development assistance to a developing country
may be deemed compatible with the common market if it
complies with the terms laid down for that purpose by OECD
Working Party No 6 in its Agreement concerning the
interpretation of Articles 6 to 8 of
the understanding on
Export Credits for ships or any addendum or corrigendum to
the Agreement. The Commission has to verify the particular
(cid:145)development content(cid:146) of the proposed aid and satisfy itself that
it falls within the scope of the Agreement mentioned above.

The OECD criteria require among other things that the donor
shall give appropriate assurances that the real owner is resident
in the beneficiary country and that the beneficiary company is
not a non-operational subsidiary of a foreign company (6).

In this case the Commission interprets the abovementioned
provision as meaning that the owner must be resident in FPO.
Since the investors were resident in France and the operator
was registered in Paris, the Commission had doubts that the
aid proposal complied with the OECD criteria.

in the light of

to be implemented,

in the Pacific region,

Furthermore, whilst tourism is a priority sector in development
the specific
terms
conditions under which it was
the
Commission was not convinced that the project contained a
genuine development content. The development element
in
FPO appeared to be limited, since the immediate beneficiaries
of the aid were the investors who enjoyed the tax exemption.
In other words the recipients of the quantifiable aid would not
be resident in the developing country. It appeared that FPO
would only benefit to the extent to which extra passengers

(6) Commission letter to Member States SG(89) D/311 of 3 January

1989.

In addition, the Commission doubted that the viability of the
project was as low as the estimation indicated, given that
French private companies would invest their profits in the
vessels. Logically, investors will only invest in a project if they
anticipate a profit.

Thus, the Commission initiated the procedure because at that
the OECD
stage of
criteria were met or that the development element could be
verified.

the investigation it was doubtful

that

III. COMMENTS FROM FRANCE

(cid:145)la Loi Pons(cid:146)

In the course of procedure France stated that the Commission
to similar
had approved the application of
projects. The Commission had agreed in the past not to call
into question such projects when run in an overseas territory.
Thus,
the
for a similar procedure commenced in 1995,
Commission had indicated in its letter SG(97) D/500 of 23
the law was only
the application of
January 1997 that
restricted in respect of
the overseas
departments. Accordingly, ships such as the (cid:145)Club Med II(cid:146) or
more recently the (cid:145)Paul Gauguin(cid:146) will be able to continue to
benefit from the provisions of article 4(7) of the Shipbuilding
Directive when they are assigned mainly to the overseas
territories.

intended for

ships

The real objective of (cid:145)la Loi Pons(cid:146)
is to help the operators
overseas to develop their business so as to compensate for the
specific disabilities facing them (insularity,
in the case of
French Polynesia). The aid enables the investors to engage in a
joint ownership that provides the operator with vessels. The
company RF, domiciled in Paris,
leases the ships from the
investors in order to run them in FPO for at least five years
(seven years after the order). Furthermore, RF has committed
itself to the investors to buying the vessels at the end of this
period. The profitability is linked to fiscal measures, whereby
the benefit of the aid is transferred towards the operator of the
vessels who is the effective recipient of the aid. This set-up
allows the tax aid effectively to flow back to the operator.

It was
initially planned that RF should be domiciled in
(metropolitan) France in order to ensure better security for the
investors who thus contract with a company established in the
metropolis. This domicile does not change the fact that the
vessels will be run in FPO. However, France has confirmed to
the Commission that the operational domicile of the company
RF would be transferred to FPO, but that such a transfer would
take approximately three months.

13.11.1999

EN

Official Journal of the European Communities

L 292/25

considerable

advantages on the

France further argues that the operation of the cruise vessels
economic
would confer
development of FPO. Tourism is a priority in the strategic
programme of FPO, adopted by the FPO Government for the
years 1996 to 2005. By the end of that period it should yield
net resources of about FRF 3 billion per year. In this context,
the potential of developing cruising in FPO is very important,
considering the four million-odd square kilometres of ocean
across which it lies and the fact that it consists of hundreds of
islands and islets with extremely varied physical features.

The cruising envisaged by RF is suited to the objectives sought
by the Government of French Polynesia. The activity will entail
hotel stays on the ground, and calling at ports,
thereby
involving local suppliers. Three preparatory missions by the
organisers have already served to locate the ports of call and to
establish contacts with local companies and to devise how best
to pace visits to the various islands, using groups of passengers
of reasonable size and safeguarding the environment. It is plain
additional
that
arrangements envisaged in two years’
time by the local
authorities, will be compatible with the size of the ships once
they are brought into service.

infrastructure,

in view of

current

the

The organisers of the on-shore excursions evaluate expenditure
on the arranged programme at FRF [(cid:133)] (*) per year per ship.
These forecasts are consistent with the sales of excursions
realised for cruises
in the Seychelles using cruise vessels
belonging to the RF holding company. In addition, air transfer
expenditure is expected to be approximately FRF [(cid:133)] (*) per
year, with an equivalent expenditure by passengers on local
purchases (souvenirs, handicrafts,
flowers, and restaurants).
Also, a considerable part of RF’s operating costs (harbour
expenses, victualling, local maintenance costs) will benefit FPO.
On the basis of the operating accounts, the expenditure of this
nature accruing to FPO is expected to be approximately FRF
[(cid:133)] (*) per year and per ship. Altogether, the yearly revenue
generated for FPO is about FRF 145 million per ship.

Finally, France emphasises the number of jobs created in FPO
by the arrival of these vessels. The jobs on board the ships or
on land, created by the shipowner, will employ about 40
persons, in addition to which jobs will be generated by tourist
infrastructure,
activities
(tourism, folklore and handicrafts) as well as by the supply of
the
agri-foodstuff products from the local market.
impact of the commissioning of the vessels is estimated at 852
direct and indirect jobs.

reception and

resultant

various

In all,

compatible with the common market if it complies with the
terms laid down for that purpose by OECD Working Party No
6 in its Agreement concerning the interpretation of Articles 6
to 8 of the Understanding on Export Credits for ships or any
corrigendum to the said Agreement. The Commission must be
given prior notification of any such individual aid proposal. It
is required to verify the particular development content of the
proposed aid and satisfy itself that it falls within the scope of
the Agreement mentioned above.

As the Commission informed the Member States by letter
SG(89) D/311 of 3 January 1989, the projects of development
aid must comply with the following OECD criteria:

(1) The vessels must not be operated under a flag of

convenience.

(2)

In the event that the aid cannot be classified as public
development aid for the purposes of the OECD, the donor
must confirm that the aid is part of an intergovernmental
agreement.

(3) The donor must give appropriate assurances that the real
owner is resident in the beneficiary country and that the
beneficiary company is not a non-operational subsidiary
of a foreign company.

(4) The beneficiary must give undertakings not to sell the ship

without governmental approval.

Also, the aid granted must include a concessionary element of
25 % at least.

By letter to Member States SG(97) D/4333 of 10 June 1997,
the Commission provided an updated list of countries eligible
for development aid under the Shipbuilding Directive.

On the basis of the notification and comments from France
made during the procedure, the Commission considers that all
requirements related to development aid set out in its letters
SG(89) D/311 and SG(97) D/4333 are met in this case:

(1) The vessels will be operated under French flag, which is

not a flag of convenience.

(2) French Polynesia

listed in the Annex to letter
SG(97) D/4333 regarding countries that are eligible for
development aid.

is

IV. ASSESSMENT OF THE AID

According to Article 4(7) of the Shipbuilding Directive, aid
granted as development assistance to a developing country
It may be deemed
should not be subject

to the ceiling.

(3) The Commission accepts the arguments put forward by
France that RF is the effective recipient of the aid, and
since RF is obliged to buy the vessels, RF can be
considered to be the de facto owner of the vessels.
In
addition if, as is suggested by France, RF is going to be

L 292/26

EN

Official Journal of the European Communities

13.11.1999

registered in FPO, the owner may be considered to be
in FPO. Also, RF is not a non-operational
resident
subsidiary of a foreign company.

(4) The operator is obliged to deploy the vessels in FPO for at
least five years (seven years after placing the order). Since
RF has promised the French authorities to deploy the
vessels in FPO, the vessels cannot be sold without the
knowledge of the French Government.

Also, the level of the OECD grant element exceeds the required
minimum of 25 %.

content of

the project,

the
Regarding the development
Commission acknowledges
importance of developing
the
tourism in FPO. The Commission has found no information to
support its initial fear that the profitability of the vessels will
be lower than was anticipated by France. France has on the
other hand clarified that the investments will be profitable for
the investors, despite the fact that the operator expects a loss
over the first five years.

satisfied that

the Commission is

Moreover, on the basis of the study put forward by France
showing an overall revenue for FPO of almost FRF 300 million
per year and an impact on employment of more than 800
jobs,
the vessels will
contribute significantly to the economic development as well
as having a positive impact on employment. Furthermore, the
Commission considers that
the aid is necessary, since the
vessels would probably not be used in FPO without it. First, RF
will not be obliged to use the vessels in that region. Secondly,
the low profit expectations in FPO are likely to encourage the
since
operator
Renaissance Cruise Inc.
it
would be able to adjust its schedule and deploy the vessels
wherever it anticipates a higher level of profitability. The
Commission therefore regards the aid as necessary in order to
ensure that the vessels will actually be deployed in FPO and
thereby enhance its development.

is already active on other routes,

to deploy the vessels

elsewhere. Finally,

Clearly, if the vessels are not deployed in FPO, they will not
bring about any economic development there. Therefore, it is
essential that the aid is linked to a requirement that the vessels
be deployed in FPO. France has undertaken that the vessels
will be used exclusively in FPO for at least five years. The
Commission has decided make this a condition upon which it
approves the aid, since the development content of the project
would otherwise be compromised.

in the event of a breach of

this
It should be noted that
Decision whereby the aid could not be considered to comply
with Article 4(7) of the Shipbuilding Directive, it would follow
that the aid would have to be regarded as aid to the yard.
Therefore,
in such an event the Commission would request
France to recover the aid from the yard. In addition, the fact
that the Commission has approved projects in the past where
the same scheme has been used to grant development aid to
its
French territories, does not absolve the Commission of

obligation to verify
shipbuilding is
governing state aid to shipbuilding.

application to
in accordance with the Community rules

an individual

that

V. CONCLUSIONS

the foregoing,

In the light of
the notification and the
comments made by France in the course of the procedure have
allayed the doubts which originally prompted the Commission
to initiate the procedure. Subject to the transfer of RF’s place
of residence from Paris to FPO, and subject also to the
exclusive use of the vessels in FPO for a minimum of five
years, the Commission considers the aid to be in accordance
with Article 4(7) of the Shipbuilding Directive,

HAS ADOPTED THIS DECISION:

Article 1

The aid which France is planning to grant in the form of tax
concessions in the sale by Chantiers de l’Atlantique of two
cruise vessels and which the notification states as having an
aid intensity of 41,6 % is compatible with the common market,
subject to the conditions set out in Article 2.

Article 2

France shall ensure that the company Renaissance Financial is
registered in French Polynesia prior to delivery of the two
vessels.
the vessels shall be deployed solely in
French Polynesia for a minimum of five years.

In addition,

Article 3

inform the Commission, within two months
France shall
following notification of this Decision, of the measures taken
to comply with it.

Article 4

This Decision is addressed to the French Republic.

Done at Brussels, 30 March 1999.

For the Commission

Karel VAN MIERT

Member of the Commission