2003/691/EC: Commission Decision of 9 July 2003 on State aid which Spain is planning to implement in the form of contract-related operating aid for three LNG ships built by IZAR (Text with EEA relevance) (notified under document number C(2003) 2009)
Date: 2003-07-09
Institutions: European Commission
Subjects: Spain, State aid, control of State aid, shipbuilding, tanker

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Official Journal of the European Union

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 9 July 2003

on State aid which Spain is planning to implement in the form of contract-related operating aid
for three LNG ships built by IZAR

(notified under document number C(2003) 2009)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2003/691/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Communities, and in particular the first paragraph
of Article 88(2) of the EC Treaty,

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

Having regard to Council Regulation (EC) No 1540/98 establishing new rules on aid to shipbuilding (1),
and in particular to Article 3(2) thereof,

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

Whereas:

I. PROCEDURE

(1)

(2)

(3)

On 6 November 2001 Spain notified the Commission of its request to be granted an extension of
the delivery limit for four liquefied natural gas (LNG) tankers contracted by the Spanish shipbuilding
group IZAR. By letter dated 24 April 2002 the Commission informed Spain that it had decided to
initiate a proceeding under Article 88(2) of the EC Treaty in respect of the measure. Spain replied
by letter dated 4 June 2002, registered on 6 June 2002.

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

The Commission received comments from interested parties. It forwarded them to Spain, which was
given the opportunity to react; its comments were received by letter dated 3 December 2002.

(1) OJ L 202, 18.7.1998, p. 1.
(2) OJ L 33, 5.2.2000, p. 6.
(3) OJ C 238, 3.10.2002, p. 2.

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II. DETAILED DESCRIPTION OF THE AID

(4)

(5)

(6)

Article 3(2) of Council Regulation (EC) No 1540/98 (the shipbuilding Regulation) states that the
operating aid rate applicable to a contract shall be that in force at the date of signature of the final
contract. However, for any ship delivered more than three years from the date of signing of the final
contract the ceiling applicable to that contract shall be that in force three years before the date of
the vessel's delivery.

According to the same Article, operating aid of 9 % is allowed for ships contracted before 31
December 2000. For ships contracted after that date, no operating aid is allowed. Therefore, without
an extension of the three-year delivery limit, no operating aid can be provided for ships delivered
after 31 December 2003, even if the contracts were signed before the end of 2000. According to
Article 3(2) of the shipbuilding Regulation, the Commission may extend the three-year delivery limit
in case of exceptional circumstances or technical complexity of the ships.

Spain has requested an extension of this three-year delivery limit, due to technical complexity, for
three LNG tankers built by IZAR. The original request concerned four ships, but in a letter dated 6
March 2002 Spain informed the Commission that one order had been cancelled, and that the
request now concerns three ships. IZAR is owned by the Spanish state holding company SEPI, and
is a shipbuilding group consisting of six civil and three military yards.

(7)

The Spanish notification concerns ships numbers 3 to 5 in the table, with planned dates as follows.
Ships 1 and 2, in the same series, are included for comparison.

Ship
number/
Yard

S

PR

TABLE

Date of contract

Production start

Planned delivery

(in months)

Planned
production
time

Planned time
from contract
to delivery

July 2000

August 2000

November 2003

39,5

July 2000

October 2000

December 2003

321/S

July 2000

January 2001

15 February 2004

103/PR

December 2000

June 2001

30 June 2004

36,5

105/PR

December 2000

December 2001

31 December 2004

36

Note: S = Sestao shipyard, PR = Puerto Real shipyard.

39

37

40

41

42,5

42

48

(8)

Spain has referred to a Commission statement (1) from 1990 to the effect that, when the Commis-
sion first proposed the possibility of extending the three-year delivery limit for technical reasons, it
was taking account in particular of the construction of liquid gas carriers and very large cruise liners.
Spain further argues that these ships are at least as complicated as the product tankers for which the
Commission granted an extension (2) in 1993. Spain also claims that the production time is no
longer than that of other major shipyards building, or having built LNG tankers.

(1) Statement inserted in the minutes of the Research Council of 21 December 1990 (ref. 10377/90).
(2) Case N 727/93 (OJ C 175, 28.6.1994, p. 6).

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III. COMMENTS FROM THIRD PARTIES

(9)

in the initiation of
the normal period from contract

The Commission has received comments from France.
the
France contests a statement
to
proceeding that
delivery for LNG tankers is 36 months, and provides
figures from Japanese and Korean yards showing that
this time is often between 35 and 60 months. France
therefore finds it normal that the Spanish yards cannot
deliver the five ships before the end of 2003. However,
France underlines that Spain should have requested the
extension of
the three-year delivery limit before the
contracts were signed, and not almost one year after. A
retrospective extension would to some extent distort
competition with other yards interested in the same
orders.

IV. COMMENTS FROM SPAIN

(10)

Spain agreed with the French comments on the time
needed between contract and delivery. Concerning notifi-
cation of the extension one year after the contracts were
signed, Spain stated that it had notified the request in
any event and would wait for a Commission decision
before any contract-related aid was provided.

V. ASSESSMENT OF THE MEASURE

(11) According to Article 87(1) of the Treaty, 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
common market.
In accordance with the established
case-law of the Community law courts, the criterion of
trade being affected is met, if the recipient firm carries
out an economic activity involving trade between
Member States. Shipbuilding is an economic activity
involving trade between Member States.

(12) According to Article 87(3)(e) of the EC Treaty, categories
of aid specified by a decision of the Council acting by a
qualified majority on a proposal from the Commission
common
considered compatible with the
may be
market. The Commission notes that the Council adopted
the shipbuilding Regulation on this basis on 29 June
1998.

(13)

‘shipbuilding’ means building of

The Commission notes that, according to that Regula-
tion,
self-propelled
seagoing commercial vessels. The Commission also notes
that the IZAR-owned shipyards Puerto Real and Cadiz
build such ships and consequently are undertakings
covered by the Regulation.

(14) Under Article 3(1) of

the shipbuilding Regulation, a
maximum ceiling of 9 % for contract-related operating
aid for ships was allowed until 31 December 2000. The

aid ceiling applicable to the contract would be the one
in force at the date when the final contract is signed.
However, this does not apply to ships delivered more
than three years after the signing of the contract. In
these cases, the ceiling applicable is the one in force
three years before the date of the delivery of the ship.
Consequently, the last delivery date for a vessel still
qualifying for operating aid is 31 December 2003.

(15) Article 3(2) of the shipbuilding Regulation stipulates that
‘the Commission may, however, grant an extension of
the three-year delivery limit when this is found justified
the individual ship-
by the technical complexity of
building project concerned or by delays resulting from
unexpected disruptions of a substantial and defensible
nature in the working programme of a yard due to
exceptional circumstances, unforeseeable and external to
It will be noted that Spain bases its
the company’.
request for extension of the delivery limit on the tech-
nical complexity of the individual shipbuilding project
concerned.

(16)

The Commission notes that extension of the delivery
limit is crucial to deciding whether the ships in question
will qualify for contract-related operating aid. The oper-
ating aid in question concerns financing from State
resources part of the costs that the yard in question
would normally have to bear when building a vessel.
Therefore, the aid which can be provided if the three-
year delivery limit is extended for the ships falls within
the scope of Article 87(1) of the EC Treaty.

(17) When it

initiated the proceeding,

the Commission
expressed doubts about two aspects of the case. These
were the production time and the period between
contract and delivery of the vessels in question. These
doubts will be analysed below in light of the information
received during the proceeding.

(18) As regards the first doubt, the construction period for
the LNG tankers, the Commission stated that it currently
took only about 30 months to build a vessel of this type.
The fact that it is possible to deliver LNG tankers within
36 months of signing the contract led to doubts that
such ships could benefit from an extension of the three-
year limit due to technical complexity.

(19) On this issue Spain has highlighted the complexity of
the ships, and requested that production times should be
compared with other EU shipyards and not with the
most experienced Korean shipyards. It has also under-
lined the need to make a certain number of installations
at the shipyards concerned, since it is the first time LNG
tankers have been built there. Spain also points out that
double hull LNG tankers, built
in Spain, are more
complex than some other LNG tankers, and therefore
need a longer construction period.

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(20)

The information provided during the proceeding has not
contradicted the statement made when the proceeding
was initiated that, currently,
the construction period
could be about 30 months. Nevertheless, the Commis-
sion acknowledges that LNG tankers are particularly
complex ships technically, with a long construction
period. It also notes that the fact that the two Spanish
yards, and IZAR, are building vessels of this type for the
first time,
is a valid reason for accepting a somewhat
longer production time than in the case of the most
experienced Korean shipyards.

(21)

Furthermore, the Commission would cite its statement
from 1990 to the effect that when it proposed the possi-
for technical
bility of extending the three-year limit
reasons,
the
it was taking account
construction of liquid gas tankers and very large cruise
liners.

in particular of

considered necessary. Both France

(22) As regards the second doubt, the period from contract
to delivery of the vessels concerned, the Commission
wondered whether this was not much longer than could
be
and Spain
submitted comments in this respect. Spain states that the
average period from contract to delivery for LNG tankers
built in the EU is around 49 months, and for LNG
tankers built in Asia around 42 months. France agrees
that periods from contract to delivery in the major Asian
yards are between 35 and 60 months.

The Commission notes that the period from contract to
delivery is a combination of the construction period and
the time from signing the contract to starting produc-
tion. The Commission would not be able to extend the
delivery period, if the time from contract to the start of
production was excessively long. In the present case, the
time from contract to start of production of the vessels
is 6, 5 and 12 months respectively, which the Commis-
sion considers to be acceptable.

(26)

(27)

(28)

The Commission considers in this respect that it can
adopt a decision to suspend payment of aid which is
compatible with the common market, the principle in
Deggendorf, only if the aid granted in the new decision
gives rise to a combination of aid that renders the new
aid incompatible. The Commission considers that the
present case does not concern the effect of combination
on the amount of aid to be authorised, but only whether
specific conditions for an extension exist.

The Commission finds, therefore, that the fact that it
does not consider that the illegal state aid referred to
above has been recovered does not prevent Spain from
granting the operating aid linked to the three vessels in
question.

Lastly, regarding the French comment that a retrospec-
tive extension would to some extent distort competition
with other yards interested in the same orders,
the
Commission notes that Article 3(2) of the Shipbuilding
Regulation does not state that requests for an extension
of
the delivery limit have to be notified before the
contracts are signed. The Commission also notes that
Spain has informed it that no operating aid will be
granted for the vessels in question, unless the Commis-
sion decides to extend the delivery period.

VI. CONCLUSION

(29)

In view of the reasons set out above, the Commission
considers that an extension of the three-year delivery
period can be approved for the three vessels in question.
The delivery period should be extended to the planned
delivery dates mentioned above (15 February 2004, 30
June 2004 and 31 December 2004),

For the reasons set out above, the Commission considers
that the delivery time may be extended for the vessels
concerned in accordance with the abovementioned
planned delivery dates.

HAS ADOPTED THIS DECISION:

It will be noted that, when it initiated the proceeding,
the Commission stated that, following its negative deci-
sion on State aid in the form of tax credits for publicly
owned Spanish shipyards (2000/131/EC) (1), the yards in
question have not repaid the aid. If, in its final decision
on this case, the Commission should find that there is
reason to authorise the three-year extension for any of
the three LNG tankers, it would also have to examine
the relevance of the judgment of the Court of Justice of
15 May 1997 in Case C-355/95 Textilwerke Deggen-
dorf (2),
if the abovementioned aid has still not been
recovered.

Article 1

The three-year delivery limit laid down in Article 3(2) of Regu-
lation (EC) No 1540/98 is extended for three LNG tankers built
by IZAR as follows:

(a) until 15 February 2004, for ship 321 built at Sestao ship-

yard;

(b) until 30 June 2004, for ship 103 built at Puerto Real ship-

yard, and

(1) OJ L 37, 12.2.2000, p. 22.
(2) [1997] ECR I-2549.

(c) until 31 December 2004, for ship 105 built at Puerto Real

shipyard.

(23)

(24)

(25)

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This decision is addressed to the Kingdom of Spain.

Article 2

Done at Brussels, 9 July 2003.

For the Commission

Mario MONTI

Member of the Commission