2001/882/EC: Commission Decision of 25 July 2001 on the State aid implemented by France in the form of development assistance for the cruise vessel "Le Levant", built by Alstom Leroux Naval for operation in Saint-Pierre-et-Miquelon (Text with EEA relevance) (notified under document number C(2001) 2435)
Date: 2001-07-25
Institutions: European Commission
Subjects: France, State aid, control of State aid, infringement of EU law, shipbuilding, tax relief

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Official Journal of the European Communities

L 327/37

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 25 July 2001

on the State aid implemented by France in the form of development assistance for the cruise vessel
‘Le Levant’, built by Alstom Leroux Naval for operation in Saint-Pierre-et-Miquelon

(notified under document number C(2001) 2435)

(Only the French text is authentic)

(Text with EEA relevance)

(2001/882/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

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

Having regard to Council Directive 90/684/EEC of 21
December 1990 on aid to shipbuilding (1), and in particular
Article 4(7) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2),

Whereas:

I. PROCEDURE

(1)

From an article published in Lloyds List, the Commission
learned in late 1998 that the cruise vessel Le Levant, built
by Alstom Leroux Naval in France at a contract price of
FRF 228,55 million, had been financed by means of tax
concessions available to investors financing the building
of the vessel. This aid had not been notified to the
Commission. In response to the Commission's enquiries,
France provided information about the project by letter
dated 12 May 1999. The Commission asked additional
questions by letter dated 4 June 1999, to which France
replied by letter dated 19 August 1999. France
submitted observations by letters dated 12 January and
the latter letter commenting on the
14 June 2000,

(2)

(3)

(4)

(5)

observations submitted by the legal representatives of
Compagnie des Îles du Levant (hereinafter referred to as
‘CIL’) in the context of the procedure. The Commission
asked further questions in a letter dated 26 February
2001, to which France replied by letters dated 30 April
2001 and 11 June 2001.

By letter SG(99)D/9733 dated 2 December 1999, the
Commission informed France that
it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty.

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

The comments received were forwarded by the Commis-
sion to France, which was given the opportunity to
react.

II. DETAILED DESCRIPTION ON THE AID

The aid was granted in 1996, when the cruise vessel Le
Levant was acquired by a group of private investors who
put it into joint ownership on the initiative of […] (*).
The vessel was then leased to CIL, which is a subsidiary
of the French company Compagnie des Îles du Ponant
registered in Wallis and Futuna. The investors were
authorised to deduct their investment from their taxable
income. These tax concessions enabled CIL to operate
the vessel on attractive terms. The investors have the

(1) OJ L 380, 31.12.1990, p. 13.
(2) OJ C 33, 5.2.2000, p. 6.

(3) See footnote 2.
(*) Business secret.

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right and obligation to sell back their shares to […] after
five years, i.e. at the beginning of 2004. CIL in turn has
the right and obligation to buy the shares from […] at a
price which will enable the value of the aid to be passed
on to it. As a condition of the aid, CIL is required to
operate the vessel for a minimum of five years, essen-
tially to and from St-Pierre-et-Miquelon, and for 160
days a year.

It will buy the vessel at its market value, but only if
certain economic, legal and financial conditions are met.
They also argued that, since the relevant legal framework
was the Shipbuilding Aid Directive, the aid should be
regarded as aid to shipbuilding and that in previous
similar cases (and notably in its decision relating to
Renaissance Financial (5) the Commission had considered
the aid beneficiary to be the shipyard.

(6)

(7)

(8)

The aid was granted under a tax scheme, the Loi Pons,
allowing tax concessions for investments in the French
overseas departments and territories. This scheme was
approved by the Commission in 1992.

France has informed the Commission that the aid in this
case is identical to the aid granted for the vessel Tahiti
Nui (Paul Gauguin), for which the Commission estimated
the tax concessions to have a net grant equivalent of
34 % (4). The aid represented by the tax concessions was
thus FRF 78 million (EUR 11,9 million).

the islands. Moreover,

The Commission had doubts concerning the estimated
economic benefits
for Saint-Pierre-et-Miquelon. The
project was expected to create 55 jobs on board the
vessel, but there was no guarantee that the crew would
be residents of
the overall
economic benefits (originally estimated by France at
FRF 12 million per annum over the five-year period
during which CIL was required to operate the vessel
essentially to and from the islands) were lower that the
total amount of aid, a fact which gave rise to questions
concerning its proportionality. The Commission also
had doubts as to whether the aid really was development
assistance since the vessel seems to have called in at
Saint-Pierre-et-Miquelon much less often than originally
envisaged.

(9)

The Commission therefore doubted whether the condi-
tions of Article 4(7) of Directive 90/684/EC had been
met and decided to initiate the procedure laid down in
Article 88(2) of the Treaty.

(12)

(13)

III. COMMENTS FROM INTERESTED PARTIES

(10)

The Commission has received comments from CIL's
legal representatives.

(11)

They argued that the company should not be regarded
as the beneficiary of the aid since it is currently respon-
sible only for operating the vessel, at its own risk, on
behalf of the vessel's joint owners (private investors hold
99,73 % of the shares, with the rest being held by CIL).

IV. COMMENTS FROM FRANCE

France transmitted its comments by letters of 12 January
2000, 14 June 2000, 30 April 2001 and 11 June 2001.
The letter of 14 June 2000 was concerned with the
comments of interested parties and provided additional
information. The letter of 30 April 2001 clarified the
movements of the vessel and contained a new estimate
of the financial benefits to the islands, while the letter of
11 June 2001 explained the contractual arrangements
between the investors, CIL and the organising financial
institution […].

In their initial comments, the French authorities had
stressed that, because of climatic conditions, the vessel
clearly had to be operated away from Saint-Pierre-et-
Miquelon waters in winter. Although no guarantee had
been given, priority would be given to recruiting crew
members who were Saint-Pierre-et-Miquelon residents.
There would, in any case, be benefits in terms of indirect
job creation on the islands as a result of the vessel's
stopovers there. On the basis of 50 visits a year
(passenger reception, embarkation and disembarkation,
ship supplies, etc.), such benefits would represent an
additional 11 or 12 jobs. Other jobs might also be
created by infrastructure projects and by dint of the fact
that other cruise operators seemed interested in visiting
the islands. The French authorities also argued that, in
assessing the proportionality of the aid, account should
be taken of the fact that, although CIL was obliged to
operate the vessel for only five years in the area, it could
be used for much longer given the interest in Arctic
cruises, so that any assessment should be based on a
they reaffirmed the
minimum of
importance of the project given the high level of unem-
ployment on the islands and the need for economic
diversification away from fishing.

ten years. Finally,

(4) OJ C 279, 25.10.1995, p. 3; State aid C 8/95.

(5) Case C-37/98 (OJ L 292, 13.11.1999, p. 23).

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(14)

comments
concerning the
In further observations
received from CIL's legal representatives,
the French
authorities indicated that the original estimate of 55 jobs
related to direct employment on board the vessel,
whereas the additional 11 or 12 jobs were part-time
jobs in 1999 and, like the estimate of 55 direct jobs,
were based on the operation of the vessel to and from
the islands for 160 days a year. In their most recent
letter, the French authorities confirmed that the ship had
visited the islands less often than envisaged and that the
economic impact was thus lower than expected but that
there had in any case been positive economic effects for
the islands.

Understanding on Export Credits for Ships or with any
later addendum or corrigendum to that Agreement
(hereinafter referred to as the ‘OECD criteria’). The
Commission must verify the particular development
content of the proposed aid and satisfy itself that it falls
within the scope of the said Agreement.

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

(15) On the matter of the aid beneficiary, the French authori-
ties disagreed with CIL's legal
representatives. They
pointed out that the objective of the Loi Pons was to
help operators develop their overseas activities by
compensating them for the particular handicaps they
faced in that regard. In the case at issue, the operator
would be able to acquire ownership of the vessel on
attractive terms (at a price that would allow the value of
the aid to be passed on to CIL). The French authorities
also pointed out that the Commission had agreed in the
past not to challenge such projects carried out in over-
seas territories. Thus, in a similar procedure initiated in
letter
the Commission had indicated in its
1995,
SG(97)D/500 of 23 January 1997 that the application of
the law was limited solely to vessels intended for the
overseas departments. Consequently, vessels such as the
Club Med II or, more recently, the Tahiti Nui will be able
to continue to benefit from Article 4(7) of the Ship-
building Directive if they are assigned mainly to the
overseas territories. The French authorities also pointed
out that, in the Renaissance Financial case (C-37/98) (6),
the Commission had taken the same line.

V. ASSESSMENT OF THE AID

(16)

in question must be
The aid granted for the vessel
assessed in the light of Article 4(7) of
the Council
Directive of 21 December 1990 on aid to shipbuilding
given that it concerns aid for shipbuilding granted as
development assistance in 1996 under an aid scheme
(the Loi Pons) approved in 1992.

— vessels must not be operated under a flag of conveni-

ence,

— 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,

— the donor must give appropriate assurances that the
real owner is resident in the recipient country and
that the recipient company is not a non-operational
subsidiary of a foreign company (for the purposes of
the Directive, eligible recipient countries include not
only developing countries classified as such by the
OECD but also all overseas countries and territories
associated with the European Union, including the
French overseas territories),

— the recipient must give undertakings not to sell the

ship without governmental approval.

(19) Also,

the aid granted must

include a concessionary

element of 25 % at least.

(20)

In addition, as indicated above, the Commission must
also verify that the project has a genuine development
content. In Case C-400/92 concerning German develop-
ment aid for the Chinese company Cosco, the Court
established that the Commission is obliged to verify the
development content of the project separately from the
OECD criteria. It follows that the Commission's assess-
ment must
include verification that projects have a
genuine development objective and that they would not
be viable without the aid (i.e. that the aid is necessary).

Application of the criteria to the present case

(17) Under 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

(6) See footnote 5.

(21) As the Commission indicated when the Article 88(2)
procedure was initiated, the project meets the OECD
criteria for the following reasons:

— Le Levant will be operated under the French flag; the
requirement that it not be operated under a flag of
convenience is thus met,

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— Saint-Pierre-et-Miquelon is on the list of countries
eligible for development aid annexed to the Commis-
sion letter SG(89)D/311 to Member States,

figures but taking into account the much lower number
of port visits.

— the operator (and eventual owner) is registered in
Wallis et Futuna. This is not the ‘recipient country’
(which is Saint-Pierre-et-Miquelon). However, since
both groups of islands are on the Commission's list
of countries eligible for development aid, the aid
cannot be objected to on this ground. Furthermore,
CIL appears not to be a non-operational subsidiary
of a foreign company,

— the vessel cannot be resold without the approval of
the French authorities since the aid is granted on the
condition that CIL actually operates the vessel for at
least five years mainly to and from Saint-Pierre-et-
Miquelon and then buys it from the investors in
mainland France and continues to operate it,

— the aid intensity exceeds 25 %.

(22) However, the development criterion is not met in this
case. The key point is that the French estimates of the
economic benefits are based on the assumption that the
vessel will call in at Saint-Pierre-et-Miquelon 50 times
per season (over the 160 days from late May to the end
of October during which climatic conditions in the area
permit cruising). The figure of 50 port visits is clearly
stated in a table estimating the economic benefits for the
islands.

(23)

The reality is very different. According to information
submitted by the French authorities in their letter of 30
April 2001, nine cruises were undertaken in 1999 and
11 in 2000 which included Saint-Pierre-et-Miquelon in
their itinerary (as starting/finishing point). Since the
cruises either departed or arrived in Saint-Pierre, there
were only 11 stopovers in the port of Saint-Pierre in the
1999 and 2000 seasons combined, and not 100 as
initially estimated by the French authorities.

(24) According to the same letter, 18 cruises to or from
Saint-Pierre were planned for 2001,
including include
five new mini-cruises that both arrive and depart from
Saint-Pierre. This gives a total of 12 stopovers at the
port of Saint-Pierre in 2001 compared with the 50
initially estimated.

(25) On the basis of the figures for 1999 and 2000, the
Commission has concluded that the assumptions under-
lying the calculation of the economic benefits for Saint-
Pierre-et-Miquelon were wrong. It has therefore recalcu-
lated the estimated economic benefits, using the French

(26) With regard to the direct economic benefits, the French
estimates are that spending linked to operation of the
vessel would be FRF 10,8 million per annum. Local
spending by passengers is estimated at FRF 1,2 million
per annum. In both cases, the data are based on 50 port
visits a year. However, as indicated above, the vessel
visited the port only 5,5 times a year in 1999 and 2000.
It plans to make 12 visits this year.

(27) Given the nature of the economic benefits envisaged in
the calculations (food, equipment, port fees, etc.), it can
be assumed that they are proportional to the number of
visits to the port. The benefits are put at FRF 12 million
a year on the basis of 50 visits. Assuming that the
economic calculations made by France are correct with
regard to the impact of the ship's visits and taking into
account the number of visits in 1999 and 2000, the
benefit to the islands would amount to 5,5/50 or 11 %
of the initial estimates. For 2001, the benefits would be
12/50 or 24 % of the initial estimates.

(28) Over each of the last two years, the real benefits would
therefore have been 11 % of FRF 12 million,
i.e.
FRF 1,32 million. According to the French authorities,
some 760 passengers embarked or disembarked at Saint-
Pierre in each of these two years. Assuming an economic
impact of FRF 1,32 million, this would imply spending
of FRF 1 700 per person, which seems reasonable given
that passengers are not likely to spend more than one
night on the islands before or after a cruise.

(29)

For 2001, the benefits can be estimated at 24 % of
FRF 12 million, i.e. FRF 2,88 million. For the next two
years, the cruise schedule is not known. Taking the
figure for 2001, the total economic benefit to Saint-
Pierre-et-Miquelon over the five years 1999-2003 would
be 1,32 + 1,32 + 3 x (2,88), i.e. FRF 11,28 million.
Since the total value of the aid is FRF 78 million, this is
almost seven times greater than the economic benefit to
the islands.

(30) As far as direct jobs are concerned, the French authori-
ties have stated that priority would be given to
employing residents of Saint-Pierre-et-Miquelon among
the 55 crew. However, the only information that has
been provided is that four former fishermen from the
islands have been trained to work on the ship. The
presumption must be that the crew does not to any
large extent come from the islands.

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(31)

(32)

(33)

The claims concerning other indirect benefits (the devel-
opment of infrastructure and the possibility of other
cruise operators visiting the islands) have not been and
probably cannot be quantified. Moreover, they are not
directly relevant to the development character of this
particular project or to the proportionality of the aid
involved. It is therefore not necessary to take them into
account in this assessment.

Finally, the Commission cannot accept the argument put
forward by the French authorities to the effect that a
longer period than five years should be taken into
account since there is no obligation on CIL to continue
operating the vessel to or from Saint-Pierre-et-Miquelon
after that period.

In the light of the foregoing, the Commission therefore
concludes that it has not been possible to establish that
this project was indeed a development project. The
alleged benefits in terms of direct job creation have not
been substantiated and are not based on realistic
the alleged direct economic
assumptions. Moreover,
benefits are significantly less than the aid involved,
resulting in a clear lack of proportionality between the
aid and the intended economic impact.

(34)

The Commission finds that France has unlawfully imple-
mented the aid in question in breach of Article 88(3) of
the Treaty. The aid is not consistent with the Ship-
building Directive and is therefore incompatible with the
common market. It must therefore be recovered with
interest.

Beneficiary of the aid

(35)

There remains the question of which party is the main
beneficiary of the aid. This point was mentioned when
the procedure was initiated. At that time, the Commis-
sion noted that the immediate beneficiaries of the quan-
tifiable aid were the investors receiving the tax conces-
sions. This analysis is still valid.

(36) According to the French authorities,

the investors
obtained advantages from the tax concessions and they
are still the owners of the vessel under the terms of the
joint ownership. They will continue to enjoy these
advantages for some five years following the delivery of
the vessel (i.e. until the beginning of 2004). The vessel
will then have to be sold at a price which, according to
the available information, will transfer the aid to the
operator CIL. It is thus clear that CIL will be the main
final beneficiary of the aid once the ship has been sold
to it at an advantageous price.

(37)

The shipyard can be said to have benefited indirectly in
that the aid enabled it to obtain an order that it might
not otherwise have won.

Recovery of the aid

(38)

(39)

(40)

Since the unlawful and incompatible aid has already
been granted, it must be recovered in order to restore
effective competition and, to that end, interest must be
charged from the date on which it was made available to
the beneficiary until such time as it is recovered.

In the light of the above analysis, there is no doubt that
it is the investors, as the direct beneficiaries and current
owners of
the vessel, which should repay the aid.
Although it is doubtful whether any of the private indi-
investors holding the 738 shares can be held
vidual
responsible for the misuse of the aid, they have never-
theless benefited and continue to benefit from the tax
concessions as owners of a vessel which was bought on
attractive terms.

If the ship had been sold to CIL at below the market
price and if the aid had thus been transferred to it, it
would be CIL that would have to repay the aid. Since
this transfer will not take place before mid-2003, the
operator CIL cannot be considered liable to repay the aid
at this stage.

(41) As for the shipyard, no recovery should take place from
it under the current circumstances. In this respect, it is
useful to explain why there is a provision on develop-
ment assistance in the Seventh Shipbuilding Directive.
The reason is that it opens up the possibility of granting
a higher level of aid than that allowed for other ship-
building contracts. Such higher levels of aid can be
declared compatible if the OECD rules are respected. It is
clear from those rules that they are addressed to the aid
donor, the shipowner and the developing country, but
not to the shipyard. If the OECD's substantive rules,
including the development criteria, are breached,
it
would not be reasonable to accuse the shipyard since it
cannot be held responsible for the operation of the ship
after delivery,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which France has implemented in the form of tax
concessions and as development assistance for the cruise vessel
Le Levant, built by Alstom Leroux Naval for operation in the
French overseas territory of Saint-Pierre-et-Miquelon, cannot be
regarded as genuine development
assistance within the
meaning of Article 4(7) of Council Directive 90/684/EEC on
aid to shipbuilding and is therefore incompatible with the
common market.

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Article 2

Article 3

1.
France shall take all necessary measures to discontinue
and recover from the investors, as the direct beneficiaries and
current owners of the cruise vessel, the aid referred to in Article
1 and unlawfully made available to the beneficiary.

2.
Recovery shall be effected without delay and in accord-
ance with the procedures of national law provided that they
allow the immediate and effective execution of this decision.
The aid to be recovered shall include interest from the date on
which it was at the disposal of the beneficiaries until the date
of its recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant equivalent of
regional aid.

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

This Decision is addressed to the French Republic.

Article 4

Done at Brussels, 25 July 2001.

For the Commission

Mario MONTI

Member of the Commission