2006/219/EC: Commission Decision of  20 July 2005  on the State aid implemented by France for two cruise ships with a view to the development of French Polynesia  (notified under document number C(2005) 2731)   (Text with EEA relevance)
Date: 2005-07-20
Institutions: European Commission
Subjects: France, French Polynesia, State aid, control of State aid, development aid, pleasure craft, shipbuilding, tax relief

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Official Journal of the European Union

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COMMISSION DECISION

of 20 July 2005

on the State aid implemented by France for two cruise ships with a view to the development of
French Polynesia

(notified under document number C(2005) 2731)

(Only the French text is authentic)

(Text with EEA relevance)

(2006/219/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
the first subparagraph of
Community, and in particular
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 Regulation (EC) No 1540/98 of
29 June 1998 establishing new rules on aid to shipbuilding (1),

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

Whereas:

I.

PROCEDURE

(1) By Decision 1999/719/EC (3), the Commission approved
development aid for the construction of two cruise ships,
R3 and R4. The aid was authorised on condition that the
ships would be deployed solely in French Polynesia for at
least five years.

(2) By letter dated 3 October 2002, France informed the
Commission that the French authorities had agreed that
the two ships could be operated, to some extent, outside
French Polynesia.

(4) The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (4).
The Commission invited interested parties to submit
their comments on the aid.

(5) The Commission received comments from one interested
party. It forwarded them to France, which was given the
its comments were received by
opportunity to react;
letter dated 15 September 2003.

(6) Other letters were received from France dated 11 June
2003, 13 October 2003, 10 February 2004, 24 March
2004, 3 June 2004 and 10 May 2005.

II.

DETAILED DESCRIPTION OF THE MEASURE

(7) The two almost identical passenger cruise ships R3 and
R4, delivered in May and September 1999, were built by
Chantiers de l'Atlantique, a shipyard situated in France.
They were eligible for French development aid as they
were intended to support tourism in French Polynesia
(hereinafter FPO), a territory eligible for development aid
according to OECD and EU shipbuilding rules.

(8) The original owners of the ships R3 and R4 were private
investors in France. They received a tax deduction based
on their investment in the ships under a tax aid scheme
allowing tax concessions on investments in French
departments and territories (5), the Loi Pons. In Decision
1999/719/EC,
the aid element was estimated to be
41,6 % of the value of the ships.

(3) By letter dated 2 April 2003, the Commission informed
France that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid in question.

(9) Under the scheme introduced by the Loi Pons, the owners
of R3 and R4 undertook to rent out the ships at an
attractive rate for five years to Renaissance Financial and

(1) OJ L 202, 18.7.1998, p. 1.
(2) OJ C 105, 1.5.2003, p. 30.
(3) OJ L 292, 13.11.1999, p. 23.

(4)
(5)

See footnote 2.
La loi du 11 juillet 1986 modifiée, relative aux investissements
productifs dans les départements et territoires d'Outre-Mer.

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to sell the ships for a below‑market price to Renaissance
Financial after five years.

(10) The aid to the operator was thus to be provided via the
owners, both on a year‑by‑year basis and as a one‑off
gain at the end of the five‑year period. The condition for
approving the aid, as stated in Decision 1999/719/EC,
was that, in order to ensure the ‘development’ content,
the vessels would be used exclusively in FPO for at least
five years. This condition relating to the use of the ships
expired in May and September 2004.

(11) Renaissance Financial went bankrupt in September 2001.
In agreement with the owners (the French private
investors), the agreement between Renaissance Financial
and the owners as regards the ships R3 and R4 was
terminated at the end of 2001.

(12) The owners of the ships therefore needed to find a new
operator. Only P&O Princess Cruises (P&O PC) made an
offer for both ships. Consequently, in August 2002 the
owners signed an agreement with P&O PC whereby the
latter would rent the ships for three years and then buy
them. At the time, P&O PC was an independent listed
company but in April 2004 it was taken over by Carnival
Corporation and split into two subsidiaries (P&O Cruises
and Princess Cruises).

(13) The ship R3 was renamed Pacific Princess and operates all
over the Pacific Ocean, including Australia and Alaska.
The ship R4 was renamed Tahitian Princess and is based in
Tahiti, FPO. Most of its cruises take place between the
islands of FPO but visits are also made to areas outside
FPO, such as the Cook Islands and the Samoan Islands.
The ships are operated by Princess Cruises.

(14) Even though these new arrangements, contrary to the
condition imposed by Decision 1999/719/EC, provided
for operation of the ships outside FPO, the French tax
authorities agreed to this solution by deciding that the
tax benefits under the Loi Pons could be maintained.

(15) According to Article 16 of Council Regulation (EC)
the
No 659/1999 laying down detailed rules
the
application of Article 93 of
Commission may,
in the case of misuse of aid, open
the formal investigation procedure. It informed France of
this possibility by letter of 18 October 2002, but France
did not react.

for
the EC Treaty (6),

(6) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003

Act of Accession.

(16) Given the clear conditions imposed by the Commission
in Decision 1999/719/EC and the fact that it transpired
that both ships were at least partially used outside FPO,
the Commission took the view in its decision to open the
formal
investigation procedure that the condition laid
down in its 1999 decision was no longer met, causing it
to suspect
there may have been a misuse of
State aid.

that

III.

COMMENTS FROM INTERESTED PARTIES

the ships,

(17) European Corporate partners (ECP), which is a limited
company and one of the joint owners of R3, submitted
comments in a letter dated 16 July 2003. It considers
that, despite the change in use of
the
conditions for their deployment are still met. Princess
Cruises has undertaken to spend USD 4 million locally in
order to develop tourism and, as far as possible, to
employ local workers. The annual financial benefit for
FPO will, according to ECP, amount to EUR 30 million.
ECP also stated that Princess Cruises aims at a more
upmarket segment than Renaissance Financial did, and
this should lead to higher spending locally. Moreover, it
claims that a multiplier of 2,5 should be applied to
measure the full positive impact on FPO. Finally, as
regards
that
spending in regions outside FPO that are also eligible
for development aid should likewise be taken into
account when estimating the overall development effect
of the ships.

the ‘development’ content,

stresses

it

(18) ECP also claims that

it was force majeure (events of
11 September 2001) which made it necessary to change
the operator and to modify the conditions for the
operation of
the
principle of proportionality should lead the Commission
to conclude that the solution which was found with P&O
PC was the best in view of the difficult circumstances
obtaining.

the ships. Lastly,

it considers that

IV.

COMMENTS FROM FRANCE

(19) France essentially is of the opinion that the conditions
imposed by Decision 1999/719/EC are met even in view
of the new use of the ships, since the development effect
for FPO in particular and for other areas eligible for
is in keeping with the
development aid in general
fundamental objectives of
the decision. France also
considers it essential that, although the two ships are
now used very differently from each other, they should
be assessed together.

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(20) France further justifies its approval of the new use of the

(24)

ships with the following arguments:

(21) The number of ports of call

development aid is identical overall
catered for with the original use.

in areas eligible for
to the number

(22) The aggregate development effect with the new use of the
ships is very similar to what was originally intended for
FPO.

(23) The development effects forgone during the year when
the
the ships were not operated on account of
bankruptcy of Renaissance Financial need not necessa-
rily be offset by any of the conditions relating to the use
of the ships since the bankruptcy was the result of force
majeure (the terrorist attacks of 11 September 2001).

In order to provide some compensation for the time lost
when the ships were not in operation, France imposed,
and the owner accepted, an extension of the requirement
on the use of the two ships by four and five months
respectively, to mid‑2005.

(25) P&O PC has decided to continue operation of at least one
of the ships in FPO until April 2006 and is currently in
talks with the Government of FPO on a further extension
of its presence there.

(26)

In its later submissions France estimates that
the
spending generated by the two ships in areas eligible
for development aid amounts to EUR 28,9 million a
year, of which 78 % or EUR 22,5 million a year in FPO.
The total spending in FPO generated by the new use of
the ships would therefore be EUR 175,5 million (see
Table).

Estimated spending in French Polynesia linked to the ships Pacific Princess (formerly R3)
and Tahitian Princess (formerly R4)

Table

(EUR million)

Operator

1999

2000

2001

2002

2003

2004

2005

2006

Total

Renaissance Financial

5,8

44

34,5

Owners (7)

Princess Cruises

Total

8,5

7,8

22,5

22,5

22,5

7,4

84,3

8,5

82,7

175,5

(27) Lastly, France agrees with the comments made by ECP.

V.

ASSESSMENT

Legal basis for the assessment

to distort competition and affects

threatens
trade
between Member States, unless it falls within the scope
of
the derogations provided for in Article 87(2) or
Article 87(3).

(28) Article 87(1) of the EC Treaty declares any aid granted
through State resources to certain undertakings incom-
patible with the common market in so far as it distorts or

(29) With regard to Article 87(3), the Council adopted on
21 December 1990 Directive 90/684/EEC on aid to
shipbuilding (8), in accordance with which the present aid
was initially notified and approved. Under Article 4(7) of
this Directive, aid granted as development assistance to a
developing country is not subject to the aid ceiling for

(7)

Although the ships were not operated for one year, they were
maintained and, according to France, generated around EUR
8,5 million in local spending in FPO, in the form of crew costs
(even a ship not in operation needs a crew to look after it), fuel
and technical maintenance costs, port fees, etc.

(8) OJ L 380, 31.12.1990, p. 27. Directive as last amended by

Directive 94/73/EEC (OJ L 351, 31.12.1994, p. 10).

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operating aid. In assessing the compatibility of develop-
ment aid with the common market, the Commission:

aid contained in the State aid rules governing shipbuild-
ing.

— ascertains that the proposed aid falls within the
scope of the Agreement of OECD Working Party
No 6 concerning the interpretation of Articles 6 to
8 of the OECD Understanding on Export Credits for
Ships,

— verifies the particular ‘development’ content of the

proposed aid (9).

(30)

In approving the aid, the Commission therefore verified
its development content.
In Decision 1999/719/EC
approving the aid, it stated that:

is essential

‘Clearly, if the vessels are not deployed in FPO, they will
economic development
not bring about any
there.
Therefore,
the aid is linked to a
that
it
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
to make this a condition upon which it approves the aid,
since the development
the project would
otherwise be compromised.’

content of

(31) The Commission noted in its decision to open the formal
investigation procedure in 2003 that France had agreed
that one of the ships, Pacific Princess, formerly R3, should
operate permanently outside FPO and that the other,
Tahitian Princess, formerly R4, although being based in
Papeete, the capital of FPO, should also occasionally
operate in regions not belonging to FPO.

(32) On the basis of this observation, and given the clear
conditions
imposed by the Commission in Deci-
sion 1999/719/EC and the fact that both ships were at
least partially used outside FPO,
the Commission
considered that
the condition imposed by its 1999
decision was no longer met, causing it to suspect that
there had been a misuse of State aid.

(33) The rules concerning misuse of aid are set out

in
Article 16 of Regulation (EC) No 659/1999, which in
turn refers to the normal rules regarding the formal
investigation procedure and the procedures applicable to
unlawful aid.

(34) This assessment will, therefore, focus on whether the aid
can be compatible with the common market on the basis
of Decision 1999/719/EC and the rules on development

Appraisal of the compatibility of the aid

(35) The Commission firstly notes that it is established that
the ships have not been used in accordance with
Decision 1999/719/EC.

(36) The Commission will therefore assess whether the aid
granted in 1999 can nevertheless be considered as
compatible with the common market on the basis of the
new facts that have come to light during the present
investigation and of the original objective of the aid,
which was the particular economic development effect
on FPO.

(37) The two main aspects to be assessed are the effects of the
terrorist attacks of 11 September 2001 and the particular
economic development effect on FPO.

Effects of 11 September 2001

(38) The Commission has,

in a number of State aid
decisions (10), acknowledged that the terrorist attacks of
11 September 2001 were to be regarded as exceptional
circumstances for the cruise ship industry. It therefore
considers that the argument put forward by France and
ECP whereby these events created a situation of
force majeure is admissible.

(39) The Commission considers that, in the case in point, the
impact of the terrorist attacks of 11 September 2001 was
twofold.

(40) Firstly, it contributed to the bankruptcy of Renaissance
Financial. Even though Renaissance Financial had already
encountered problems before 11 September 2001, the
terrorist attacks in their impact on the cruise market
were decisive because potential investors withdrew their
support for the company. Owing to difficulties in finding
a new interested operator and to complicated legal
problems that had to be resolved between Renaissance
Financial's receivers, the owners, the French Government
and the new operator, it took almost a year for the ships
to be put back into service. Therefore, the fact that the
ships were not operated for almost one year and the

(9)

The same provision is found in Regulation (EC) No 1540/98,
which replaced Directive 90/684/EEC, and in the Commission
framework on State aid in shipbuilding (OJ C 317, 30.12.2003,
p. 11), which has been applicable since 1 January 2004
following the expiry of Regulation (EC) No 1540/98.

(10)

Including the decision in Case N 843/01 concerning Meyer
Werft Papenburg (OJ C 238, 3.10.2002, p. 10).

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resulting loss of development effects for FPO can be
linked to the situation of force majeure created by the
event of 11 September 2001.

(41) The second effect of 11 September 2001 was

to
in the short and medium term, the cruise
influence,
industry by, on the one hand, obliging companies to
lower prices in a bid to keep their customers and, on the
other, making potential clients more reluctant to travel
long distances by plane. Since FPO is a long way from the
United States and Europe, operating cruise ships there
became more difficult from a financial point of view.
While this effect can now be considered to be over, it was
discernible until 2003.

(42) On the basis of the above observations, the Commission
considers that the period during which the ships could
not be operated owing to the events linked to the
terrorist attacks does not have to be offset and can
therefore be deducted from the development effect
needed to justify the aid.

Development effects

(43) The Commission has assessed the development effects of
the use of the ships and compared them with what was
originally intended.

(44) The Commission agrees with the French request that the
development effects of the two ships should be assessed
together
since both ships were jointly assessed in
Decision 1999/719/EC. Furthermore, from a develop-
ment point of view, it is the aggregate development effect
that is of relevance and not the question as to which of
the two ships accounted for that effect.

(45) However, the Commission does not take the view that
the development effects in all the regions eligible for
development aid should be taken into account since the
original decision concerned only development effects in
FPO. Taking into account effects in other regions or
countries would be tantamount to altering the original
objective of the aid.

(46)

In the original decision the Commission based its
approval of the aid on estimations of annual spending
of some EUR 44 million for the two ships, or 5 × EUR
44 million = EUR 220 million over the five‑year period.

Done at Brussels, 20 July 2005.

(47)

(48)

is deducted,

If the time lost as a result of the 11 September events
(one year)
the development effects that
would be needed to comply with the original decision
would be 4 years × EUR 44 million = EUR 176 million.
The spending generated in FPO by the operation of the
ships, currently put at EUR 175,5 million, is virtually
equal to that amount.

It can therefore be concluded that, taking account of the
situation of
force majeure created by the attacks of
11 September 2001, the ships will, by virtue of their
currently known past and future use, have generated a
development effect
to what was originally
anticipated.

similar

(49) Accordingly, the Commission considers that the parti-
cular development effect of the aid is ensured, that the
conditions for authorising the aid are thus met and that
the aid has therefore not been misused.

VI.

CONCLUSION

(50) The Commission finds that France has,

in breach of
Article 88(3) of
the Treaty, unlawfully changed the
conditions governing the development aid authorised for
the construction of
two ships. However, since the
development effects for FPO, taking into account the
time lost for reasons of force majeure, are equivalent to
what was originally intended, the aid is compatible with
the common market and, in particular, with the rules
governing development aid for the shipbuilding sector,

HAS ADOPTED THIS DECISION:

Article 1

The Sate aid which France has implemented as development
aid for the construction of the cruise ships Pacific Princess
(formerly R3) and Tahitian Princess (formerly R4), in the form
of tax concessions, is compatible with the common market
under Article 87(3)(e) of the Treaty.

Article 2

This Decision is addressed to the French Republic.

For the Commission
Neelie KROES
Member of the Commission