2006/946/EC: Commission Decision of 6 September 2005 on State aid Portugal — Extension of the three-year delivery limit for two chemical tankers built by Estaleiros Navais de Viana do Castelo, S.A. (notified under document number C(2005) 3268) Text with EEA relevance
Date: 2005-09-06
Institutions: European Commission
Subjects: Portugal, State aid, carriage of goods, chemical product, control of State aid, delivery, shipbuilding

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COMMISSION DECISION

of 6 September 2005

on State aid

Portugal — Extension of the three-year delivery limit for two chemical tankers built by Estaleiros
Navais de Viana do Castelo, S.A.

(notified under document number C(2005) 3268)

(Only the Portuguese version is authentic)

(Text with EEA relevance)

(2006/946/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, 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 Regulation (EC) No 1540/98 establish-
ing new rules on aid to shipbuilding (1)
the
‘Shipbuilding Regulation’) and in particular Article 3.2 thereof,

(hereafter

Having called on interested parties to submit their comments
pursuant to those provision(s) (2) and having regard to their
comments,

Whereas:

(1)

(2)

(3)

I.

PROCEDURE

By letter dated 21 January 2004,
registered in the
Commission on 29 January 2004, Portugal notified the
Commission of its request to extend the three year delivery
limit for two chemical tankers built by Estaleiros Navais de
Viana do Castelo. It provided the Commission with further
information by letters dated 1 April 2004 (registered
2 April 2004), 11 June 2004 (registered 15 June 2004) and
24 August 2004 (registered 31 August 2004).

By letter dated 20 October 2004,
the Commission
it had decided to initiate the
informed Portugal
procedure laid down in Article 88(2) of the EC Treaty in
respect of the aid.

that

By letter dated 23 November 2004 (registered 1 December
2004), the Portuguese authorities presented their com-
ments in the context of the above-mentioned procedure.

(4)

(5)

(6)

(7)

(8)

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

from interested
The Commission received comments
parties. It forwarded them to Portugal, which was given
the opportunity to react; its comments were received by
letter dated 3 March 2005 (registered 7 March 2005). A
and the
meeting between the Commission services
Portuguese authorities was held on 22 April 2005. By
letter dated 23 May 2005 (registered 27 May 2005)
Portugal submitted further comments.

II.

DETAILED DESCRIPTION OF THE AID

The notified measure consists of the award of contract-
related operating aid to Estaleiros Navais de Viana do
Castelo S.A., in relation to the construction of two product/
chemical tankers designated C 224 and C 225. The aid
amounts to 2 675 275 Euro per vessel.

the Shipbuilding
Portugal notified the measure under
Regulation (4). Article 3 of this Regulation allows operating
aid to be granted for ships contracted until 31 December
2000 and delivered within a maximum limit of three years
from the signing of
the contract. No contract related
operating aid can therefore be granted for ships delivered
after the three year limit, unless an extension of
this
deadline is authorized by the Commission pursuant to
Article 3 (2) subparagraph 2 of Regulation No 1540/98.

Portugal requested an extension of the three-year delivery
deadline for the two product chemical tankers built by
Estaleiros Navais de Viana do Castelo, S.A. Portugal claimed
that this request is justified by the technical complexity of
the project
as
associated with unforeseeable
explained below.

events

(1) OJ L 202, of 18.7.1998, p. 1.
(2) OJ C 308, of 14.12.2004, p. 6.

(3) Cf. footnote 2 above
(4) Cf. footnote 1 above

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(9)

that

in this context,

the shipbuilding
Portugal stated,
contracts for both vessels were signed on 22 December
2000 between Estaleiros Navais de Viana do Castelo, S.A.
and Alpha Navigation Ltd (the ‘original contracts’). On
14 May 2001, Alpha Navigation transferred its position as a
buyer to a company based in Finland, ABB Credit OY, via
‘assignment agreements’
that were signed by the three
parties involved: Alpha Navigation, ABB Credit OY and
Estaleiros Navais de Viana do Castelo S.A. The new owner
requested new specifications, namely the upgrading of the
vessels to ‘Class I-A Super’ for navigation in the ice and to
that effect signed with Estaleiros Navais de Viana do
Castelo, S.A., also on 14 May 2001, ‘Amended and Restated
contracts’ for the vessels.

(10) According to Portugal, the new specifications requested by
the new ship owner had implications on several features
and materials of the vessels and required the yard to use
new techniques, which in turn delayed production. Portugal
highlighted, in particular, the following main difficulties in
relation to the project:

— Adaptation of the initial projects to class IA Super
related to the conditions for navigation in the ice.

— Application of a new standard, ISO 8501-3, concern-
ing the grade of preparation of the steel surface before
in the process of
painting. This standard was still
adoption when the contracts were signed (5). Portugal
claims it required a training period for the workers of
the yard.

— Application of a special paint, called ‘Marineline’,
which requires a longer application cycle than
traditional paint.

— Additional changes requested by the ship owner at

several instances during production.

the ships were effectively delivered on 29 October 2004
and 4 February 2005, respectively (6).

Grounds for initiating the procedure

(13) The Commission initiated the procedure for the following

main reasons:

(14) The Commission had doubts, at the outset, whether the
amended and restated contracts signed with ABB Credit OY
on 21 May 2001, could be considered the same as the
original contracts signed with Alpha Navigation. The
amended and restated contracts signed with ABB Credit
OY changed several characteristics of the vessels, the type of
paint used on the cargo tanks, the identity of the buyer and
the vessels’ prices. It was therefore questionable whether the
object of these contracts was still the same as that in the
original ones and whether the contracts signed with ABB
Credit OY could qualify for aid.

(15) Also, regarding Portugal's claim that the extended deadline
was justified by the technical complexity of the project, the
Commission had doubts that the type of product/chemical
tankers built by Estaleiros Navais de Viana do Castelo, S.A.
could qualify for an extended deadline on these grounds.
The Commission tends to interpret
the argument on
technical complexity in a restrictive and objective way (7)
and the evidence supplied by Portugal was insufficient to
reach a conclusion.

(16) The Commission further doubted whether the elements
raised by Portugal could qualify as ‘exceptional circum-
stances, unforeseeable and external to the shipyard’, within
the meaning of Article 3(2) of the Shipbuilding Regulation.
The Commission noted, in this respect, that most of the
difficulties encountered by the shipyard resulted from the
changes requested by the new owner and in so far as the
shipyard had accepted these changes it was questionable
that they could qualify as ‘external and unforeseeable’.

— Supply of steel plates with serious default that had to

III.

COMMENTS FROM INTERESTED PARTIES

be corrected.

(11)

In Portugal's view, the difficulties relating in particular to
the implementation of the new standard and the supply of
steel plates with default were unforeseeable circumstances.

(12) Under the terms agreed with ABB Credit OY, the yard had
foreseen to deliver vessel C 224 on 30 October 2003 and
vessel C 225, on 15 November 2003, i.e. within the three-
year delivery deadline. However, due to the above factors,

(5) Standard ISO 8501-3 only came into effect on 22 December 2001

(17) The Community of European Shipyards’ Association (CESA)
commented that in the shipbuilding business, the assign-
ment of a construction contract from one buyer to another
may happen with certain frequency and that a shipyard
faced with this situation has limited leverage for refusing
the assignment.
In particular in Europe, shipyards fre-
quently adapt to changing requirements of the buyers.
However, in the view of CESA, this would not imply that

(6) Portugal initially notified an extension request up to July 2004 for
vessel C 224 and November 2004, for vessel C 225 and later
extended this request up to the actual delivery dates of October 2004
and February 2005.

(7) See case N 731/01 where the Commission considered that a liquified
gas tanker is a particularly complex ship, (OJ C 238, 3.10.2002, p. 1).

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the changed contracts are new contracts given that the
product type — product/chemical tanker — and range of
the overall capacity or weight of the vessels remained the
same.

(18) One party requested the Commission to verify the correct
classification of the ships (product/chemical tankers, as
opposed to pure chemical tankers as initially indicated in
the decision to initiate the procedure).

IV.

COMMENTS FROM PORTUGAL

(19) Portugal noted that

the shipyard had programmed to
complete the vessels within the three-year limit imposed by
the Shipbuilding Regulation. At the time the assignment of
the contracts to ABB was concluded, the shipyard's order
book was virtually full, which left the yard with little
flexibility for eventually advancing production of
the
vessels in the face of the new requirements of the ship
owner. In addition, Portugal considered that the technical
difficulties incurred by the shipyard were not foreseeable
when it signed the contracts. Regarding the special coating
used, the ship owner requested that this be extended to a
larger number of tanks at an advanced stage of the project,
which further delayed production.

(20)

In support of its arguments, Portugal submitted statements
by the ship owner and by the classification society for the
vessels in question, Det Norske Veritas, certifying that these
new buildings should be considered of
‘high technical
complexity on their segment’. The classification society
noted in particular that the new tanks comply with the
highest
ice strengthening requirements, high electronic
technology for nautical safety, as well as high demanding
building contract specifications for steel preparation and
finishing as well as coating.

(21) Portugal also noted that

there had been no known
competition for these particular contracts from shipyards
in the EU, which limited any distorting effects of the aid vis-
à-vis EU shipyards.

(23) The operating aid in question concerns financing from
State resources of part of the costs the yard concerned
would normally have to bear when building a vessel, thus
benefiting the yard. Moreover, shipbuilding is an economic
activity involving trade between Member States. Therefore,
the aid in question falls within the scope of Article 87(1) of
the EC Treaty.

Compatibility of the aid with the EC Treaty

(24) According to the Shipbuilding Regulation (8), ‘shipbuilding’
means building of self-propelled seagoing commercial
vessels. Estaleiros Navais de Viana do Castelo S.A. builds
these ships and consequently the aid to this shipyard falls
under the scope of this Regulation.

(25) Article 3(1) of the Shipbuilding Regulation states that a
maximum ceiling of 9 % (for contract values bigger than
EUR 10 million) of contract related operating aid for ships
is allowed until 31 December 2000. According to Article 3
(2) of the same Regulation, the aid ceiling applicable to the
contract is the one in force at the date of the signature of
the final contract. However, this does not apply to ships
delivered more than three years from the signing of the
contract.
the ceiling applicable to that
contract shall be that in force three years before the date of
delivery of the ship. Consequently, the final delivery date for
a vessel still qualifying for operating aid is 31 December
2003.

In such cases,

(26) Article 3(2) of the Regulation stipulates, however, that the
Commission may ‘grant an extension of the three-year
delivery limit when this is found justified by the technical
complexity of the individual shipbuilding project concerned
or by delays resulting from unexpected disruptions of a
substantial and defensible nature in the working pro-
gramme of a yard due to exceptional circumstances,
unforeseeable and external to the company’.

(27)

It is noted that Portugal based its request on the technical
complexity of the project associated with unforeseeable
events, thereby addressing both types of exceptions.

V.

ASSESSMENT OF THE AID

Presence of aid within the meaning of Article 87(1) of
the EC Treaty

(28) As regards the issue of technical complexity of the project,
the Commission services requested the opinion of an
outside expert. The following examines the Commission's
conclusions in the light of the comments submitted by the
expert, as well as
those submitted by Portugal and
interested parties.

(22) Under Article 87(1) any aid granted to 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, insofar as it affects trade between Member States, be
incompatible with the common market.

(8) Cf. Footnote 1. The Shipbuilding Regulation expired on 31 December
2003. However,
it must still be used to assess requests for the
extension of the delivery time limit, since the issue is related to aid
granted under this Regulation and since the Shipbuilding Frame-
work, effective since 1 January 2004, does not provide any guidance
for such requests.

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Eligibility of the contracts for aid

This led to halts in production and required perfection of
work.

(29)

It is noted that further to the transfer of ownership from
Alpha Navigation to ABB Credit OY, the product type of the
contracts remained the same — product/chemical tanker.
The weight of the vessels did not vary significantly when
considering the range of variation for this product type (9).
Furthermore, according to the information submitted by
Portugal, ABB Credit Oy took over all rights and obligations
that were those of Alpha Navigation in the original
contracts and reimbursed the latter payments already made
to ENVC. On the basis of the foregoing it can be concluded
that the transfer of ownership did not in itself change the
nature of the contracts and thereby their eligibility for aid.

Technical complexity of the project

(30) The comments submitted further to the initiation of the
procedure confirm that there were elements of complexity
of the project which can justify the extension of the delivery
deadline requested by Portugal.

(31) The Class I-A Super applied to these vessels is the more
demanding in a scale of four, according to the thickness of
the ice the vessel will have to overcome. It prepares vessels
to navigate in ice thickness of one metre and places specific
demands on the structure. Such requirements have a major
impact on the design of
the project (hull, propulsion,
networks) which must be adapted accordingly.

(32) The requirements concerning the preparation of the steel
surface and the application of paint can be particularly
demanding in the case of product/chemical tankers, in view
of the risk associated with the type of products they are
designed to transport. It appears that in the case of vessels
of Class I-A Super, the quality of the steel itself must be of a
special grade,
low
temperatures.

integrity at

to ensure

structural

(33)

In the present case, the shipyard was faced at the outset
with difficulties linked to the quality of the steel supplied,
which had defaults that had to be corrected. In addition, the
level of difficulty concerning the preparation of the steel
surface was apparently magnified by the ship owner's own
standards. Portugal explained that the steel surface was
specifications of a new
prepared according to the
standard (10) that requires the steel to be ‘free of all visible
imperfections’ and that the shipyard had difficulties in
matching the ship owner's interpretation of this standard.

(9) The original contracts concerned product/chemical
deadweight

tankers of
to
15 500 tonnes
(tdw). This was modified
14 000 tdw in the amended contracts. On the basis of
the
information available product and chemical carriers may typically
start from below 4 000 tdw and go up to more than 40 000 tdw.
(10) ISO 8501-3, concerning the grade of preparation of the steel surface

before paint.

(34) The ‘Marineline’ paint used in the constructions is of a
special nature designed to create high resistance to
corrosion. It requires rounding of corners and very clean
surfaces. The cure of the paint is performed at very high
temperatures (80 to 122 oC) which requires adjacent spaces
to remain unpainted if
they cannot withhold these
temperatures. It presents high risks of defects and rejection
with the necessary repair and touch-up that can have major
implications on the scheduling of works.

(35) The Commission accepted in the decision to open
proceedings that the supply of steel plates with default,
which had to be repaired by the yard, had contributed to
delay the project by some 2 months.

(36)

It appears, further to the information received subsequent
to the initiation of procedure, that the above elements had
major implications on the scheduling of the project. The
degree of perfection of the steel surface was an essential
element in this project which in turn conditioned the
application of the special coating. Further, it is noted that
complexity could not have been
such elements of
anticipated by the shipyard in so far as they depended on
third parties (plate defects, quality level requirements of the
ship owner) and the yard had no experience with the
particular type of coating used.

VI.

CONCLUSION

(37)

In the light of the foregoing, the Commission considers that
in accordance with Article 3(2)
subparagraph 2 of
Regulation No 1540/98 an extension of the three year
the two product/
delivery limit can be approved for
chemical tankers built by Estaleiros Navais de Viana do
Castelo, S.A based on the technical complexity of
the
project. The Commission also notes that in the light of this
conclusion,
it does not consider necessary to further
examine whether the reasons invoked by Portugal could
qualify as exceptional circumstances, unforeseeable and
external to the company within the meaning of the above
Article. .

(38) The extension of the delivery deadline is authorized up to
the actual delivery dates of the vessels (29 October 2004
and 5 February 2005).

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HAS ADOPTED THIS DECISION:

Article 1

The three-year delivery limit foreseen in Article 3(2) of Council
Regulation(EC) No 1540/98 is extended for
two product-
chemical tankers built at Estaleiros Navais de Viana do Castelo,
to 29 October 2004 for ship C 224 and 5 February 2005 for
ship C 225.

This Decision is addressed to Portugal.

Article 2

Done at Brussels, 6 September 2005.

For the Commission
Neelie KROES
Member of the Commission