Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement on state aid granted by the Research Council of Norway in connection with the software programme Turborouter
Date: 2006-10-26
Institutions: EFTA Surveillance Authority
Subjects: EFTA, Norway, State aid, control of State aid, exchange of information, project management, research and development, research project, software

C 258/42

EN

Official Journal of the European Union

26.10.2006

Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance
and Court Agreement on state aid granted by the Research Council of Norway in connection with
the software programme Turborouter

(2006/C 258/13)

By means of Decision No 60/06/COL of 8 March 2006, reproduced in the authentic language on the
pages following this summary, the EFTA Surveillance Authority initiated proceedings pursuant to Article
1(2) in Part I of Protocol 3 of the Agreement between the EFTA States on the establishment of a Surveil-
lance Authority and a Court of Justice (Surveillance and Court Agreement). The Norwegian authorities
have been informed by means of a copy of the decision.

The EFTA Surveillance Authority hereby gives the EFTA States, EU Member States and interested parties
notice to submit their comments on the measure in question within one month from the publication of
this notice to:

EFTA Surveillance Authority
Registry
35, Rue Belliard
B-1040 Brussels
Fax: (32-2) 286 18 00

The comments will be communicated to the Norwegian authorities. Confidential treatment of the identity
of the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

By letter dated 5 March 2002 (Doc. No. 02-1733-A), the Authority received a complaint alleging that state
aid had been granted by Norway through the Research Council of Norway (hereinafter:
‘the RCN’) to
various research projects in connection with the development of the software programme Turborouter.

On 8 March 2006, after an extensive exchange of correspondence between the Authority and the Norwe-
gian authorities as well as with the complainant, the Authority decided to open the formal investigation
procedure with regard to the projects referred to in the complaint.

The RCN had granted aid to four projects related to the development of the software programme Turbor-
outer within the framework of the aid scheme Industrial R&D Programme. The Authority had assessed this
programme, together with other existing aid schemes, and adopted Decision No 217/94/COL in December
1994 proposing appropriate measures to Norway. The Norwegian authorities accepted the appropriate
measures. Accordingly, thereafter, any granting of aid under this scheme had to be done in accordance
with the State Aid Guidelines on R&D aid adopted by the Authority in 1994.

On the basis of the information available, the Authority has doubts whether the granting of aid to the
concerned research projects complied with the provisions of the R&D Guidelines.
It is questionable
whether the projects were correctly classified. This is in particular the case regarding the three projects
considered as pre-competitive research projects, which could be too close to the market to be eligible for
aid.

The Authority also has doubts about the financing of the project. It is not clear whether the companies
participating in the projects actually contributed to the research costs of the projects or whether regular
operating costs were considered as part of the research projects. Should this be the case, the aid intensities
will have to be revised.

In this context, the Authority has doubts whether the aid beneficiaries misused the aid granted by the
RCN.

Should the granting of aid to the projects concerned not be covered by the scheme Industrial R&D
Programme, each project will have to be assessed individually on the basis of the provisions of the R&D
Guidelines applicable at the time the grants were given or directly on the basis of the rules of the EEA
Agreement.

26.10.2006

EN

Official Journal of the European Union

C 258/43

EFTA SURVEILLANCE AUTHORITY DECISION

No 60/06/COL

of 8 March 2006

on R&D aid granted by the Research Council of Norway in connection
with the development of the software programme Turborouter

(NORWAY)

THE EFTA SURVEILLANCE AUTHORITY (1),

Having regard to the Agreement on the European Economic Area (2), in particular to Articles 61 to 63 and
Protocol 26 thereof,

Having regard to the Agreement between the EFTA States on the Establishment of a Surveillance Authority
and a Court of Justice (3), in particular to Article 24 thereof,

Having regard to Article 1(2) and (3) in Part I and Articles 1, 4, 6, 10, 13, 14, 16 and 20 in Part II of
Protocol 3 to the Surveillance and Court Agreement (4),

Having regard to the Authority's Guidelines (5) on the application and interpretation of Articles 61 and 62
of the EEA Agreement, and in particular Chapter 14 thereof, ‘Aid for Research and Development’,

Having regard to the Authority's Decision of 14 July 2004 on the implementing provisions referred to
under Article 27 in Part II of Protocol 3 (6),

Having regard to the Authority's Decision No 217/94/COL of 1 December 1994 to propose appropriate
measures to Norway on, amongst others, the aid scheme Industrial R&D Programmes,

Having regard to Norway's acceptance of the proposed appropriate measures by letter dated 19 December
1994,

Whereas:

1. Procedure

I. FACTS

By letter dated 5 March 2002 (Doc. No 02-1733-A), the Authority received a complaint alleging that state
aid had been granted by Norway through the Research Council of Norway (hereinafter:
‘the RCN’) to
various research projects in connection with the development of the software programme Turborouter.

The Authority requested information from the Norwegian authorities by letter dated 26 April 2002 (Doc.
No 02-2605-D). The Ministry of Trade and Industry replied by letter dated 3 June 2002 (Doc. No 02-
4177-A), which included RCN's comments on the so-called Turborouter project.

In October 2002, a meeting between representatives from the Authority and the Norwegian authorities
took place in Oslo in order to clarify some technical aspects.

On 28 February 2003, the Authority requested further clarification and documentation on certain aspects
raised during the above-mentioned meeting (Doc. No 03-1159-D). The required information was supplied
by the Norwegian authorities by letter dated 11 April 2003 (Doc. No 03-2338 A) and completed by letter
of 20 June 2003 (Doc. No 03-4083-A).

(1) Hereinafter referred to as ‘the Authority’.
(2) Hereinafter referred to as ‘the EEA Agreement’.
(3) Hereinafter referred to as ‘the Surveillance and Court Agreement’.
(4) Hereinafter referred to as ‘Protocol 3’.
(5) Procedural and Substantive Rules in the Field of State Aid, Guidelines on the application and interpretation of Articles
61 and 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement, adopted and
issued by the EFTA Surveillance Authority on 19 January 1994, published in OJ 1994 L 231, EEA Supplements
3.9.94 No 32, last amended on 14 December 2005, hereinafter referred to as ‘the Guidelines’.

(6) Not yet published in the OJ or the EEA Supplement. Available at:

http://www.eftasurv.int/fieldsofwork/fieldstateaid/legaltexts/ms2decision.DOC. This Decision has been last amended
by the Authority's Decision No 329/05/COL of 20.12.2005.

C 258/44

EN

Official Journal of the European Union

26.10.2006

Representatives of the Authority and the Norwegian authorities discussed the case at a meeting in the
framework of the package meeting which took place in Oslo on 23 September 2004. Some of the issues
raised during this meeting were later addressed by the Authority in a letter dated 11 November 2004
(Event No 294194). The Norwegian authorities answered by letter of 31 January 2005 (Event No 307137).

The Authority lastly requested information in a letter dated 7 July 2005 (Event No 323594). The Authority
furthermore stated that should the response from the Norwegian authorities not dispel the remaining
doubts of the Authority, the formal investigation procedure would have to be opened with respect to the
granting of R&D aid in connection with the development of the software programme Turborouter.

The Norwegian authorities replied in a letter dated 22 August 2005 (Event No 331615).

The complainant contacted the Authority on various occasions during the preliminary investigation and
submitted additional information.

2. The complaint

In March 2002, the Authority received a complaint alleging that the RCN had granted R&D aid to ‘projects
in the maritime sector that violate the EEA rules. The projects that have received state aid are commercial software
programs that are marketed and sold in the international markets. We refer specifically to the software program called
TURBOROUTER’.

According to the complainant, the Turborouter programme is distorting the competition with other Euro-
pean or international companies which develop software programmes for the maritime industry. The
complainant, who has software products in the same sector, has stated to have invested important sums of
money in developing mathematical algorithms, which seem to be similar to the ones used in Turborouter.

The complaint concerns not only the projects that led to the development of a commercial software
programme called Turborouter but also its development in several sub-projects. Although the complainant
identified Project 136171 Algopt and Project 144214 Optimisation routines, it explicitly stated that the
complaint is not limited to these projects but concerns ‘all of these projects that have been targeting the develop-
ment of a commercial software program called Turborouter’.

The complainant mainly argued that (1) the projects that received aid were too close to the market to be
eligible for R&D aid and had been marketed for sale to third companies in Norway and abroad; (2) the
research results had not been disseminated but the research institute Marintek, which developed the soft-
ware programme Turborouter, had received the property rights to sell the programme; (3) the maximum
aid intensities had not been respected due to the fact that the own capital contribution from the concerned
companies was in reality lower than stated in the application form. The complainant brought forward the
following arguments to support the complaint:

1) ‘The RCN has given aid to projects which are very close to the market. Turborouter has for more than two years
been actively marketed for sale both domestically in Norway and abroad. This marketing has been done partly by
the research institute Marintek and partly by Shipnet, a privately owned commercial vendor of software systems for
the maritime industry with which, according to the information submitted by the complainant, Marintek has an
agreement. The Turborouter projects cannot be classified into “fundamental research” nor “industrial research”
according to the definitions laid down by the EEA. In view of the complainant, the projects are even far
beyond pre-competitive development activity.
“Turborouter projects are aimed at developing software
programs that are developed in close co-operation with a limited number of users, and in parallel is actively
marketed towards any maritime company in need of such program”.’

2) ‘As the Turborouter projects have received public aid and where in the R&D programs it has been stated that
reports will be made available for any party interested, it is a breach of the regulations to give Marintek the
proprietary rights to sell and market the program. In view of the complainantthis confirms the argument that
Turborouter is a commercial product far beyond any R&D stage.’

3) ‘In calculating the aid intensities, the RCN has used the pro forma funding assumed in the R&D application to be
given by the aid receiving firm.’ The complainant claimed neither to have seen any documentation that the
firms actually contributed with their own resources to the alleged funds, nor any audited reports where
such contribution is proven. ‘For many projects in the maritime sectors the aid receivers are supposed to chip in
their own contribution, but quite often there is in actual fact very little man time hours or any other costs that the
receivers chip in.’

26.10.2006

EN

Official Journal of the European Union

C 258/45

3. The four projects related to the software programme Turborouter supported with RCN funds

a) Description of the projects

1) Project 40049 — Strategic activities within maritime transport and logistics (The first version of the

software programme Turborouter)

Together with the Centre for International Economy and Shipping (SIØS), which is an integral part
of the Norwegian School of Economics and Business Administration, Marintek applied to the RCN
for support for the project ‘Strategic activities within maritime transport and logistics’ under the ‘Strategic
Institute Programme’ (SIP) in 1995. SIP was a programme for long term research, characterised by a
large proportion of fundamental research, but strategic in its orientation to serve future needs of
industry. Under SIP, research projects could receive public financing up to 100 %.

According to the information provided by the Norwegian authorities, due to limited funds available
under this programme, the RCN re-classified the project as a ‘three-year strategic competence devel-
opment project’ under the sub-programme ‘Short Sea Shipping’ (1995-1998) within the Industrial
R&D Programme. The whole project was re-classified as industrial research although some activities
constituted fundamental research.

Project 40049 ‘Strategic activities within maritime transport and logistics’ was broad in concept and
covered several sub-projects. The first version of the pilot software Turborouter was developed in
the first year of research of one of the sub-projects called ‘Methods and analytical tools for design and
operation of integrated transport and logistics chains’.

Nowadays, Turborouter is a tool (7) for optimising vessel fleet scheduling, i.e. to decide which vessels
to assign different cargoes to. The design philosophy has been to combine the knowledge and
experience of the planners with the calculating capabilities of the computer. Optimisation software
implemented on a computer can calculate millions of alternatives in only a few seconds but tend to
have restricted ability to handle all practical constraints that occur in real life. Turborouter is based
on electronic sea charts where scheduling information can be displayed. Other key elements of
Turborouter include a database for vessels, ports, cargoes, etc; automatic calculation of port-to-port
distances; vessel position reports and automatic update of estimated time of arrival; sophisticated
optimisation routines for fleet scheduling; schedule visualisation or schedule calculator for manual
planning.

According to the information provided by the Norwegian authorities, out of the total NOK 10,5
million budget for Project 40049, the RCN contributed NOK 4,6 million, the Norwegian Ship-
owners' Association (NSA) NOK 1,4 million and Marintek NOK 4,5 million.

The table below recapitulates the costs of the project and its financing of the project in NOK (8):

Costs

Financing

Personal and indirect costs

8 700 000

Own financing

Purchase of R&D

600 000

RCN

Equipment

Other operating costs

450 000

750 000

Total

10 500 000

4 500 000

6 000 000

Total

10 500 000

According to the information provided by the Norwegian authorities, the project costs for the sub-
project ‘Methods and analytical tools for design and operation of integrated transport and logistics chains’
amounted to NOK 5,1 million. The state support for it amounted to NOK 2,24 million.

(7) The following information has been obtained from the brochure TurboRouter Vessel schedule optimizing software,

available at the website of Marintek: http://www.marintek.no

(8) These figures have been obtained from the form submitted to the RCN for the application for a grant.

C 258/46

EN

Official Journal of the European Union

26.10.2006

Further development of the software programme Turborouter

According to the information provided by the Norwegian authorities, the RCN selected several
the software package Turborouter for R&D support.
projects related to the development of
According to the RCN, even though they had elements of industrial research, these projects were
classified as ‘pre-competitive development activity’. The RCN considered that the results from each
of these projects were company specific prototype demonstrators which would need considerable
further in-house development to become day-to-day tools in the companies' operations.

2) Project 138811 — AlgOpt

The aim of this project (9) was to develop and carry out practical tests of algorithms to calculate the
optimal utilisation of a fleet of ships, given the obligations to load cargoes for several customers, the
requirements as to when cargoes must be loaded and discharged in the destination port, the possibi-
lity of carrying joint cargoes of a limited number of bulk goods on each voyage as well as limitations
that mean that not all the vessels involved are suitable for serving all customers or all ports.

The overreaching objective of AlgOpt was that the algorithms should be integrated into a software
concept that would offer users full control and the possibility of overriding the suggestions made by
the algorithms. The software should help decision-makers to combine their own experience with the
ability of the numerical processes to test a number of possibilities rapidly and in a manner that
offers the best possible basis for making decisions.

The principal activities of the Project AlgOpt were the definition of user dialogues and criteria for
good capacity utilisation; the development of algorithms for working out optimal voyage combina-
tions; the testing of algorithms and the follow-up and documentation of benefits.

According to the information submitted by the Norwegian authorities, the Project AlgOpt was only
a pre-study defining the user requirements and investigation of the feasibility of using Turborouter
for the contract partner, the company Beltship Management AS. Total costs amounted to NOK
925 000. The project was classified as pre-competitive research. The financing was split between the
RCN (NOK 300 000) and private funds from participating companies (NOK 625 000). The table
below recapitulates the costs of the project as well as its financing (10):

Costs

Financing

Personal and indirect costs

Purchase of R&D

Other operating costs

545 000

380 000

Own financing

RCN

625 000

300 000

Total

925 000

Total

925 000

3) Project 144265 — Shiplog II

The Shiplog project mainly dealt with transport at sea. This project (11) should use the results of a
previous project called Shiplog (which did not involve the use of Turborouter) to focus on the
requirements for door-to-door delivery of goods, when transport at sea is a key element. The objec-
tives of the project were:

— to support interaction between parties involved in door-to-door transport. This objective was
shared by the EU proposal ‘D2D’, which aimed at demonstrating an integrated management and
communication system for door-to-door intermodal freight transport operation,

— to demonstrate the communication of information between software systems by using XML (12)

messages,

— to demonstrate how TurboRouter could be integrated in a door-to-door transport service.

The project should utilise the results obtained in other projects such as Intermodal Portal, Themis,
D2D, INTRA, INFRATRANS, TRANSDATA or INFOLOG.

(9) Information obtained from Marintek's website: http://www.marintek.no
(10) These figures have been obtained from the form submitted to the RCN for the application for a grant.
(11) Information obtained from Marintek's website.
(12) XML (Extensible Mark-up Language) is a flexible way to create common information formats and share both the
format and the data on the World Wide Web, intranets, and elsewhere. XML is a formal recommendation from the
World Wide Web Consortium (W3C) similar to the language of today's Web pages, the Hypertext Mark-up Language
(HTML).

26.10.2006

EN

Official Journal of the European Union

C 258/47

The activities of the project included:

1. Methodology for modelling business processes which concerned the evaluation of business

processes required in door-to-door transport.

2. The use of XML messages in system communication, which should specify the requirements for
system communication and will implement XML messages supporting the exchange of informa-
tion.

3. Development of demonstrator of door-to-door transport, which should implement an Internet

application demonstrating a door-to-door transport operation.

4. Integrating Transport Chain Management System (TCMS) and TurboRouter, which should specify
the interface and demonstrate the exchange of information between TurboRouter and the TCMS
demonstrator.

According to the information provided by the Norwegian authorities, this project failed to achieve
its objective because TCMS and Turborouter could not be satisfactorily integrated.

The RCN classified this project as pre-competitive development and awarded it state aid for an
amount of NOK 2,15 million out of the NOK 6,2 million of the total project costs. The project
received funds from the NSA for an amount of NOK 750 000 which were channelled through the
RCN. The remainder was financed by the contract partner of this project, the company United Euro-
pean Car Carriers AS (UECC), and other participating companies. The table below recapitulates both
the costs and the financing of the project (13):

Costs

Financing

Personal and indirect costs

800 000

Own financing

Purchase of R&D

2 150 000

Other private means

Equipment

100 000

RCN

800 000

3 250 000

2 150 000

Other operating costs

3 150 000

Total

6 200 000

Total

6 200 000

4) Project 144214 — Library of optimisation routines for scheduling in shipping

The pre-competitive research project ‘Library of optimisation routines for scheduling in shipping’
aimed at developing algorithms for advanced optimisation and scheduling of very complex shipping
operations. The Norwegian authorities have explained that the library of algorithms is very trade
and company specific and must thus be company-owned and not part of the standard Turborouter
‘tool kit’. Nevertheless,
it may give rise to development of additional Turborouter functionalities
demanded by the applications development.

The overall project costs amounted to NOK 7 million, of which NOK 1,5 million were covered by
the RCN, NOK 805 000 by the NSA and the remaining amount of NOK 4,7 million by private
funds. The company Beltship Management AS was the contract partner of this project.

The table below recapitulates the costs and the financing of the project (14):

Costs

Financing

Personal and indirect costs

4 100 000

Own financing

Purchase of R&D

2 900 000

Other private means

Equipment

Other operating costs

RCN

Total

7 000 000

1 950 000

2 750 000

2 300 000

Total

7 000 000

(13) These figures have been obtained from the form submitted to the RCN for the application for a grant.
(14) These figures have been obtained from the form submitted to the RCN for the application for a grant.

C 258/48

EN

Official Journal of the European Union

26.10.2006

b) The beneficiaries

The projects addressed in the current Decision have been developed in cooperation between the
research institute Marintek and several private companies. Two of the private companies were the
contract partners of the concerned projects and are therefore addressed in the following. In this context
the other companies involved in the said projects could also be considered as potential beneficiaries for
the purposes of this Decision.

1) Marintek

Marintek is a research institution, 56 % owned by the SINTEF group, a private research foundation,
26 % by the Norwegian Shipowners' Association, 9 % by Det Norske Veritas, an independent foun-
dation, and the rest by several shareholders in the maritime community.

Marintek delivers marine technology research and development services. Together with the Depart-
ment of Marine Technology at the Norwegian University of Science and Technology (NTNU), it
constitutes the Marine Technology Centre in Trondheim. The Norwegian Marine Technology
Research Institute does research, development and technical consulting in the maritime sector for
industry and the public sector. The Institute develops and verifies technological solutions for the
shipping and maritime equipment industries and for offshore petroleum production. Marintek's busi-
ness areas include shipping, shipbuilding, offshore marine industry and marine industry (15).

According to the information provided by the Norwegian authorities, Marintek has developed
several software packages. Most of them are only for ‘internal use’ but others are made available as
commercial products through marketing alliances.

2) United European Car Carriers (UECC)

UECC (16) is a provider of logistics and sea transportation services for the vehicle manufacturing
industry in Europe with an extensive route network to transport all sorts of rolling cargo to most
destinations in Europe.

According to current figures, UECC is a short sea operator which transports approximately 1,8
million new vehicles a year on behalf of the global automotive industry. As a major logistics
provider, UECC is able to offer total management solutions, which encompass the full transport
chain, from the manufacturing plant through to the final retail destination. In addition to a fleet of
over 20 specially-designed vessels, UECC also operate the own vehicle handling centres and provide
full tracking information at unit level using the latest IT-systems.

UECC is owned in equal shares by Nippon Yusen Kabushiki Kaisha (NYK) of Tokyo, one of the
world's largest shipping companies, and by Wallenius Lines of Stockholm, a Swedish shipping enter-
prise.

3) Beltship Management AS

Beltship Management is a company which operates a highly specialised fleet of so-called self-
unloading bulk carriers. Beltship Management was established in 1997 as a 50/50 partnership
between Jebsens Shipping Company and Heidelberger Zement Group of Germany. The company is
located in Bergen, Norway. Beltships has 9 vessels at their disposal, mainly with independently oper-
ated belt self-unloaders. Most of the vessels operate in the North Sea basin and in the Mediterranean.
Beltship Management has been involved in the development of TurboRouter since 1999, and has
used the tool for optimizing fleet scheduling in the North Sea basin since then (17).

4. Description of the relationship between the four grants of aid and the Norwegian aid scheme

for industrial R&D programmes

According to the information provided by the Norwegian authorities, the four grants of aid covered by the
present Decision received aid within the framework of the aid scheme ‘Industrial R&D Programmes’ (bruker-
styrte forskningsprogrammer).

(15) Information issued from Marintek's website: http://www.sintef.no/Content/page2____690.aspx.
(16) Information issued from UECC's website: www.uecc.com.
(17) Information issued from ‘TurboRouter, Vessel schedule optimizing software’, a publication from Marintek.

26.10.2006

EN

Official Journal of the European Union

C 258/49

a) The aid scheme Industrial R&D Programmes

Prior to the entry into force of the EEA Agreement, the Norwegian authorities established an aid
scheme called ‘Industrial R&D Programmes’ (brukerstyrte forskningsprogrammer) which was administered
by the RCN. According to the information provided by the Norwegian authorities, this scheme covered
awards of aid in the form of direct grants to research programmes of 3-5 years duration, either thematic
or sector-oriented, implemented through a variable number of projects.

In December 1994, the Authority adopted a Decision on several aid schemes for research and develop-
ment existing in Norway prior to the entry into force of the EEA Agreement, amongst others, the aid
scheme Industrial R&D Programme (brukerstyrte forskningsprogrammer, case no 93-183). In this Decision,
the Authority proposed appropriate measures to bring the scheme in line with the state aid rules of the
EEA Agreement (18). In this Decision, the Authority noted that:

‘Clear guidelines or specific provisions of a binding nature have not been developed for the scheme. Awards of
aid are granted at the discretion of the responsible authorities within the framework of the Research Council's
society rules.’

In order to bring the scheme in line with the state aid rules, the Authority proposed to Norway, in par-
ticular, the introduction of detailed provisions which would ensure that awards of aid were granted in
accordance with the principles laid down in Chapter 14 of the State Aid Guidelines.

The Decision reads as follows:

‘1(i) The Norwegian authorities shall introduce detailed provisions for the schemes listed in Annex I to this
decision which ensure that awards of aid are granted in accordance with the principles laid down in
Chapter 14 of the State Aid Guidelines. This means that the provisions must

— distinguish between the different types of R&D activities by providing definitions for basic industrial
research as well as for applied research and development in line with the provisions of paragraph
14.1(2) of the State Aid Guidelines,

— define the aid intensities in such a way that as a general rule aid for basic industrial research does
not exceed 50 % and that aid for applied research and development does not exceed 25 % of the
eligible costs. These intensities can, if so desired, be adjusted according to the principles laid down in
the State Aid Guidelines and

— define the eligibility costs for the purpose of calculating the aid intensity in compliance with the defi-

nitions in paragraph 14.5(1) of the State Aid Guidelines.’

Norway accepted the appropriate measures proposed by the Authority by letter dated 19 December
1994. The acceptance of appropriate measures implied that the award of aid under the Industrial
R&D Programme would be done in accordance with the provisions of the Authority's R&D Guide-
the Authority's Decision No
lines as they were drafted in 1994. Following the wording of
217/94/COL, this is in particular the case when it concerns the definition of the different types of
R&D activities, the aid intensities and the eligible costs.

In the framework of the current preliminary investigation, the Norwegian authorities have stated
that, as a follow-up of the acceptance of the appropriate measures, the RCN developed provisions to
ensure that aid was awarded in compliance with Chapter 14 of the State Aid Guidelines on R&D
aid. This set of rules is called DOKSY, ‘Aid intensities in accordance with EEA rules’. According to the
information provided by the Norwegian authorities, Doksy is a set of provisions adopted by the
RCN which correspond mainly to the R&D Guidelines of the Authority. It serves as the basis guide-
lines for the granting of R&D aid by the RCN.

It is regrettable that the Norwegian authorities did not provide the amended version of the scheme
Industrial R&D Programmes to the Authority for its review (19). Notwithstanding this, it is the under-
standing of the Authority that the Norwegian authorities amended the set of rules called Doksy in
accordance with the amendments of Chapter 14 of the Authority's State Aid Guidelines.

(18) Decision of the EFTA Surveillance Authority No 217/94/COL of 1.12.1994. The schemes covered by this decision
were: Industrial R&D Contracts (case 93-147) and Public R&D Contracts (case 93-182) granted by the SND and
Industrial R&D Projects (case 93-181) and Industrial R&D Programs (case 93-183) granted by the RCN.

(19) According to the Decision, ‘The Norwegian authorities must inform the EFTA Surveillance Authority on the adop-
tion of such provisions [the appropriate measures], insofar as these involve state aid, before they are put into effect’.

C 258/50

EN

Official Journal of the European Union

26.10.2006

b) The Research Council of Norway

The aid granted to the undertakings for the four projects was granted by the RCN, which is the respon-
sible body in charge of the aid scheme Industrial R&D Programmes.

According to its own statement (20), the RCN is a national strategic body and funding agency for
research and innovation activities. The RCN covers all fields of research and innovation and works
together with research institutions as well as the private and public sectors to reach the national finan-
cial goals and quality targets set in this area.

The RCN plays a vital role in developing and implementing the country's national research strategy. It
acts as:

— a government adviser, identifying present and future needs for knowledge and research, and recom-

mending national priorities;

— a funding agency for research programmes and independent projects, strategic programmes at
research institutions, and Norwegian participation in international research activities. The RCN has
an annual budget of some NOK 4,5 billion and utilises specifically-targeted funding schemes to help
translate national research policy goals into action;

— a co-ordinator, initiating networks and promoting co-operation between research institutions, minis-
tries, business and industry, public agencies and enterprises, other sources of funding, and users of
research.

II. APPRECIATION

1. Introduction: the applicable legal framework

According to the information submitted by the Norwegian authorities, the four projects which are assessed
in this Decision were granted R&D aid in the framework of the Industrial R&D Programme (brukerstyrte
forskningsprogrammer, case no 93-183). As mentioned above, the Industrial R&D Programme was already in
place before 1994. Following the entry into force of the EEA Agreement in Norway, the Authority assessed
the Industrial R&D Programme together with other existing aid schemes and adopted Decision No
217/94/COL in December 1994. In this Decision, the Authority proposed appropriate measures with
respect to the Industrial R&D Programme to mainly require that awards of aid would be granted in accord-
ance with the principles laid down in Chapter 14 of the State Aid Guidelines.

The Norwegian authorities accepted the proposed appropriate measures. Thus, thereafter, any grant of aid
under the Industrial R&D Programme had to be done in accordance with the R&D rules applicable when
the Authority adopted Decision No 217/94/COL.

The R&D rules applicable when the Authority adopted Decision No 217/94/COL were Chapter 14 of the
State Aid Guidelines as adopted in 1994 (hereinafter referred to as the R&D Guidelines of 1994 (21)).

Hence, by definition, any aid granted under the scheme Industrial R&D Programmes which does not
comply with the provisions of the version of the R&D Guidelines applicable in 1994, when the Authority
proposed the appropriate measures which Norway accepted, falls outside the scope of application of the
scheme. Accordingly, such a measure would constitute new individual aid and would as such need to be
notified to the Authority individually.

In this context it is important to note that the present decision only concerns the application of the
scheme Industrial R&D Programmes to the four concrete projects identified as relating to the development
of the software programme Turborouter on which a complaint was lodged in 2002.

Should the granting of aid to the four questioned projects not be covered by the scheme Industrial R&D
Programmes as explained above, each of the projects would need to be assessed individually. In this assess-
ment, the Authority would have to determine whether state aid was granted in each of the projects and
whether this aid could have been considered compatible aid on the basis of the provisions of the R&D
Guidelines applicable at the time where the grants were given or directly on the basis of the rules of the
EEA Agreement.

(20) Information taken from the website of the RCN at http://www.forskningsradet.no/english/
(21) In January 1994, the Authority had taken Decision No 4/94/COL on the adoption and issuing of the Procedural and
Substantive Rules in the Field of State Aid (Guidelines on the application and interpretation of Articles 61 and 62 of
the EEA Agreement and Article 1 of Protocol 3). Chapter 14 thereof deals with Aid for research and development,
which mainly corresponded to the Community framework for state aid for research and development. This Decision
was published on the Official Journal L 231 of 3.9.1994, pages 1 to 84.

26.10.2006

EN

Official Journal of the European Union

C 258/51

As far as Project 40049 ‘Strategic activities within maritime transport and logistics’, which led to the develop-
ment of the first software programme Turborouter, is concerned, the aid was granted by a decision of the
RCN of December 1995. The applicable rules governing the granting of R&D aid were Chapter 14 of the
Authority's State Aid Guidelines as originally adopted in Decision No 4/94/COL. In other words, the provi-
sions of the scheme Industrial R&D Programmes as amended following the appropriate measures of the
Authority should correspond to the provisions of the generally applicable R&D Guidelines in 1995, when
aid was granted to Project 40049. Thus, should the granting of aid to this project not have been done in
compliance with these rules, the aid will have to be considered incompatible aid, unless its compatibility
can be established on the basis of the state aid provisions in Article 61(3) (a), (b) or (c) of the EEA Agree-
ment directly.

As far as the other three projects assessed in this Decision are concerned, they received aid on the basis of
decisions taken by the RCN in 2000. Prior to that date, the Authority had amended Chapter 14 of the
Guidelines with Decision No 53/96/COL adopted on 15.5.1996 to incorporate the amended Community
Framework for state aid for research and development (22). Thus, an individual assessment of the granting
of aid to Projects 138811 ‘AlgOpt’, 144265 ‘Shiplog II’ and 144214 ‘Library of optimisation routines for sche-
duling in shipping’ as individual aid should be done in accordance with the provisions of the version of
Chapter 14 of the Guidelines existing since May 1996 or directly on the basis of the state aid rules in
Article 61(3) (a), (b) or (c) of the EEA Agreement.

2. State aid assessment of the projects

Article 61(1) of the EEA Agreement states that:

‘Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States 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 Contracting Parties, be
incompatible with the functioning of this Agreement’.

Thus, in order for a measure to be considered state aid, it must constitute a selective advantage in favour
of certain undertakings, be granted through state resources, distort competition and affect trade between
the Contracting Parties to the EEA Agreement.

Firstly, the measure must confer on certain undertakings an advantage that reduces the costs they normally
bear in the course of business and relieves them of charges that are normally borne from their budgets. By
paying grants to support certain R&D projects, the RCN confers an economic advantage only on the
promoters of the selected R&D projects.

Secondly, the advantage must be granted by the State or through state resources. The RCN develops and
implements the country's national research strategy and specially acts as a funding agency for research. In
particular, for the development of the Maritime research programme, the RCN managed funds received
from the Ministries of Trade and Industry and of Finance. Thus, the public funds channelled through the
RCN and which were obtained from the above-mentioned ministries constitute state resources within the
meaning of Article 61(1) of the EEA Agreement.

Thirdly, the measure must distort competition. Since there are other Norwegian undertakings which
compete with the promoters of the selected R&D projects that may not receive support from the RCN to
carry out their R&D projects, the granting of aid has the effect of distorting competition.

Moreover, the beneficiaries of the financing are active in sectors open to competition within the EEA.
Therefore, the funds granted by the RCN for the development of R&D projects affect trade between the
Contracting Parties to the EEA Agreement.

For these reasons, the grants given by the RCN to the projects related to the development of the software
programme Turborouter constitute state aid within the meaning of Article 61(1) of the EEA Agreement.

Whether the four projects fall within the existing aid scheme will be assessed under a).

Under b), the Authority will assess whether the aid grants, if outside the existing aid scheme, nevertheless
are in compliance with the state aid rules.

(22) Published in the OJ C 45 of 17.2.1996, pages 5 to 16.

C 258/52

EN

Official Journal of the European Union

26.10.2006

a) Assessment of the projects on the basis of the aid scheme Industrial R&D Programmes

The RCN granted financing to the above-mentioned projects in the framework of the aid scheme Indus-
trial R&D Programmes, which the Authority classified as state aid within the meaning of Article 61(1)
of the EEA Agreement in its Decision No 217/94/COL of 1 December 1994.

As mentioned above, the Norwegian authorities accepted the appropriate measures proposed by the
Authority to bring the aid scheme Industrial R&D Programmes in line with the rules of the EEA Agree-
ment in a letter dated 19 December 1994. They accordingly committed to amend the aid scheme Indus-
trial R&D Programmes in accordance with the R&D Guidelines of 1994.

In the following, the Authority will assess whether the granting of aid to the four projects in question
falls within the provisions of the scheme Industrial R&D Programmes as amended in accordance with
R&D Guidelines of 1994.

As a preliminary remark, the Authority would like to point out that, in general terms, according to the
information available to the Authority at this stage, the RCN does not seem to control how the own
contributions of the beneficiaries are distributed to various activities and whether they are effectively
disbursed. This type of control seems crucial in the determination of whether the beneficiaries receive
aid in the amount they are entitled to or whether, on the contrary, they are misusing the RCN's research
grants.

1) The development of the first version of the software programme Turborouter

On the basis of the information provided by the Norwegian authorities, the RCN classified Project
40049 Strategic activities within maritime transport and logistics as industrial research. According
to Point 14.1.(2) of the R&D Guidelines of 1994, basic industrial research is defined as ‘original theo-
retical or experimental work whose objective is to achieve new or better understanding of the laws of science
and engineering as they might apply to an industrial sector or the activities of a particular enterprise.’

Although, according to the information submitted by the RCN, the project consisted of activities
which were classified as fundamental research as well as other activities which were classified as
industrial research, the project as a whole was considered as industrial research.

The development of the first software programme Turborouter, a tool useful for companies to opti-
mise vessel fleet scheduling, was developed as the result of one of the sub-projects covered by
Project 40049. Further, the project was exclusively carried out by the research institute Marintek.

Although Turborouter has become a software tool which seems to be appreciated on the market,
the RCN funds allocated to Project 40049 devoted to the sub-project ‘Methods and analytical tools
for design and operation of integrated transport and logistics chains’ only led to the development of
the first software programme Turborouter, in the application of industrial research. Obviously since
the first software was developed in the first phase of the sub-project back in early 1996, the software
has been further improved and also marketed. However, it seems that the granting of aid to project
40049 which resulted, amongst others, in the development of the first software Turborouter, cannot
by this fact be considered in relation to market proximity to be beyond the stage of industrial
research as it was classified by the RCN.

As industrial research, Project 40049 was granted aid from the RCN for an amount corresponding
to 43,8 % of the costs of the project. This intensity is below the maximum aid intensity allowed by
the Guidelines which read ‘the level of aid for basic industrial research should not be more than 50 % of the
gross costs of the project or programme.’

For the purpose of calculating the intensity of aid from R&D activities, Section 14.5.1 of R&D
Guidelines of 1994 foresaw the following eligible costs:

— ‘personnel costs (researchers, technicians, other supporting staff) calculated as a sum of the total amount

needed to carry out the project;

— other running costs calculated in the same way (costs of materials, supplies, etc.);

— instruments and equipment, land and buildings;

— consultancy and equivalent services including bought-in research, technical knowledge, patents, etc;

— additional overhead costs incurred directly as a result of the R&D project or programme being promoted.’

26.10.2006

EN

Official Journal of the European Union

C 258/53

It seems that the costs of the projects, as they were taken into account in the determination of the
granting of aid, are a priori covered by the definition of eligible costs provided in the R&D Guide-
lines of 1994.

Therefore,
accordance with the provisions of the R&D Guidelines of 1994.

it appears that the RCN had classified Project 40049 as basic industrial research in

It is the preliminary opinion of the Authority that the granting of aid to Project 40049 falls within
the scheme Industrial R&D Programme as amended on the basis of Chapter 14 of the Authority's
R&D Guidelines of 1994. This preliminary opinion is however without prejudice to the Authority's
final conclusion.

The complainant has further claimed that the research results had not been disseminated but the
research institute Marintek, which developed the software programme Turborouter, had received the
property rights to sell the programme.

The Authority would like to point out that under the R&D Guidelines of 1994, and accordingly
under the provisions of the aid scheme Industrial R&D Programmes, there was no written obligation
to disseminate the results of research as is the case for fundamental research under the currently
applicable R&D Guidelines.

2) The projects relating to the further use of the software programme Turborouter

In 2000, the RCN authorised the granting of R&D aid to three R&D projects which concerned the
use and further development of the software programme Turborouter: Project 138811 ‘AlgOpt’,
Project 144265 ‘Shiplog II’ and Project 144214 ‘Library of optimisation routines for scheduling in ship-
ping’.

The Norwegian authorities have however indicated that there were other projects which involved
the use and further development of the software programme Turborouter which did not receive any
support from the RCN (23).

The RCN classified all three projects as pre-competitive research.

In his opinion,

The complainant has claimed that these projects were far beyond pre-competitive development activ-
ities.
the so-called Turborouter projects were aimed at developing software
programmes developed in close co-operation with a limited number of users while in parallel being
marketed towards other maritime companies in need of such programmes.

What in later versions of the R&D Guidelines has been named pre-competitive research largely
corresponds to the definition of applied research and development within the meaning of the R&D
Guidelines of 1994.

Point 14.1.(2) of the R&D Guidelines of 1994 distinguished between three categories of research:
fundamental, basic industrial and applied research and development. According to this provision,
applied research ‘covers investigation or experimental work based on the results of basic industrial research to
acquire new knowledge to facilitate the attainment of specific practical objectives such as the creation of new
products, production processes or services. It could normally be said to end with the creation of a first proto-
type.’ Development is considered to cover ‘work based on applied research aimed at establishing new or
substantially improved products, production processes or services up to but not including industrial application
and commercial exploitation.’

On the basis of the information available to it at this stage of the procedure, the Authority is not in
the position of ascertaining whether these projects were correctly classified as applied or pre-compe-
titive research as will be shown below. In the following, the Authority will use the term ‘pre-compe-
titive research’ when referring to applied research and pre-competitive research.

The complainant also claimed that the maximum aid intensities had not been respected due to the
fact that the own capital contributions from the concerned companies were in reality lower than
stated in the application forms.

The Authority will address these allegations below for each of the projects concerned.

(23) See chart ‘Projects involving development of Turborouter’ handed over by the RCN during the meeting with repre-

sentatives of the Authority held in Oslo in September 2004.

C 258/54

EN

Official Journal of the European Union

26.10.2006

a) Project 138811 — AlgOpt

— Doubts concerning the classification of the project

The Norwegian authorities explained that the AlgOpt project was a pre-study defining the user
requirements and investigation of the feasibility of using Turborouter for Beltship Management, the
contract partner of the project. According to the information provided by the Norwegian authorities,
this project was considered as a sort of ‘pre-project’ to Project 144214, Library of Optimisation
routines for scheduling in shipping, which will be addressed below.

On the basis of the information available at Marintek's website, the aim of the project was to
develop and carry out practical tests of algorithms to calculate the optimal utilisation of a fleet of
ships.

It is questionable whether this project goes beyond the stage of applied or pre-competitive research
to constitute a commercial product. This application has been developed on the basis of the software
programme Turborouter incorporating algorithms to calculate the optimal utilisation of Beltship
Management's fleet. It is not clear to the Authority what would make the difference between the
pre-competitive phase of the product and the final commercial product. The Authority has doubts
as to what is the borderline between a prototype and a commercial product in the case at hand. It is
not clear from the information provided whether the result of the project financed with aid granted
by the RCN was developed further before it could be used in the daily operation of the company.

— Doubts concerning the financing of the project and the aid intensities

The Authority would like to point out that there is a slight discrepancy between the figures provided
by the Norwegian authorities in the written information submitted to the Authority concerning the
financing of the AlgOpt project and the information presented in the application forms for grant to
the RCN also forwarded by the Norwegian authorities as follows:

Table 1: Information provided by the Norwegian authorities on their letter of 11.4.2003

Costs

Financing

Personal and indirect costs

545 000

Own financing

Purchase of R&D

380 000

Other private means

Other operating costs

100 000

RCN

625 000

75 000

325 000

Total

1 025 000

Total

1 025 000

Table 2: Information provided by the Norwegian authorities in the annex to their letter of 11.4.2003

Costs

Financing

Personal and indirect costs

545 000

Own financing

Purchase of R&D

380 000

RCN

625 000

300 000

Other operating costs

-

Total

925 000

Total

925 000

The Norwegian authorities are invited to comment on these figures. They are also invited to provide
the correct information concerning the amount of money which the Norwegian Shipowners' Asso-
ciation invested in the AlgOpt project which is included in the amount granted through the RCN in
the table above. This information is of the essence when it comes to assessing the aid intensity of
the project.

Following the arguments of the complainant, there is a doubt as to whether the real research cost of
the project corresponded to NOK 380 000 instead of the amount claimed by Beltship Management
in its application for a grant from the RCN, i.e. NOK 925 000.

26.10.2006

EN

Official Journal of the European Union

C 258/55

This doubt is substantiated by comparing the figures concerning the costs of the project and its
financing. Beltship Management contributes with own means amounting to NOK 625 000 to the
financing of the project. According to the information contained in the application form to the
RCN, this sum is divided as NOK 80 000 in cash and NOK 545 000 as contribution in kind. The
later corresponds exactly to the personnel and indirect costs of the project whereas the cash contri-
bution together with the aid granted by the RCN (NOK 300 000) pays the purchase of R&D which
costs NOK 380 000.

It seems that it is Marintek, the research institute that developed the first software programme
Turborouter, which had the necessary know-how and technological competence to do the project.
Therefore, it appears rational to assume that most of the work would have been carried out by its
own staff. This would imply, in principle, that the participation of the staff of Beltship Management,
which was the final user of the software, would have most probably been related to the definition of
the users needs and/or to some degree of testing.

Although it seems questionable to what extent the staff of the company can carry out activities clas-
sified as research activities, the R&D Guidelines of 1994 did not require that staff be employed
solely on the research activities for these costs to be eligible for aid.

Notwithstanding this, comparison of the costs of the project shows that the total contribution of
Beltship Management's staff to the project which amounted to 545 000 NOK is more important and
costly than the development of the R&D which was acquired from Marintek for a total of 380 000
NOK. It seems questionable to what extent the staff of the company has carried out research activ-
ities or whether these costs rather concerned normal operational activities of the company. The
Authority would appreciate documentary evidence which can substantiate that the hours behind
these research costs were actually used in the project.

To the extent that Beltship's contribution in kind may not have corresponded to research costs, the
overall costs of the research project would be lower and the aid intensities accordingly higher.

b) Project 144265 — Shiplog II

— Doubts concerning the classification of the project

According to the information provided by the Norwegian authorities, the main objective of Shiplog
II was to develop a pilot demonstrator of door-to-door logistics management in the shipping of
chemicals and cars.

According to Point 14.1.(2) of the R&D Guidelines of 1994, applied research covers investigation or
experimental work based on the results of basic industrial research which could normally be said to
end with the creation of a first prototype. The Authority has doubts whether the definition of
applied research covers cases such as this where the pilot demonstrator or prototype seems to be
very close to what the final product would have been. According to the information submitted by
the Norwegian authorities, the integration of the Transport Chain Management System (TCMS) and
Turborouter, the main objective of this project, failed.

— Doubts concerning the financing of the project and the aid intensities

A comparison of the figures corresponding to the project costs and its financing shows that the
amount granted by the RCN equals the sum necessary to purchase R&D. Further, the contribution of
UECC's (own financing), the company in charge of the project, corresponds to the personnel and
indirect costs. The rest of the gross costs of the project covers equipment and other operating costs
and equals the financing brought by the other companies participating in the project.

The Norwegian authorities have contended in their letter dated 22 August 2005 that ‘in order to
promote cooperation [between private companies and public R&D institutions] we may in some calls for propo-
sals for industry-driven projects, state that the application will be evaluated favourably if the external purchases
of R&D from research institutes (institutes or universities) are at least as high as the support given by the
RCN.’ (24)

The Authority questions whether the figures for the total project costs have been inflated to
seemingly obtain more financing. It is questionable whether this approach has led beneficiaries to
include part of their normal operating costs in the R&D costs allocated to the research projects
financed with support from the RCN.

(24) See page 1 in the letter from the Norwegian authorities dated 22.8.2005.

C 258/56

EN

Official Journal of the European Union

26.10.2006

Should this be the case and should the R&D project in reality only correspond to the purchased
R&D, the intensity of the aid granted would have to be revised. It would then be necessary to assess
whether the revised aid intensity falls within the parameters of the Industrial R&D Programme.

c) Project 144214 — Library of optimisation routines for scheduling in shipping

— Doubts concerning the classification of the project

According to the information provided by the Norwegian authorities, in this specific project the
requirements of Beltship Management and another company, Iver Ships, were used as an example to
gain some more experience from this kind of scheduling software in shipping organisations. This
could have been of great value to Marintek's further development of Turborouter. Even if the
requirements of these two companies would not be the same as for other shipping companies, it
would be possible to build on some main principles in the used algorithms.

The Authority has difficulties in understanding which are the determining features of this project in
classifying it as applied research and not as a commercial project.

During the preliminary investigation, the Norwegian authorities have argued that the result of the
activities in any of the projects classified as applied or pre-competitive research cannot be exploited
commercially and sold to other users because they are company-specific applications. According to
the information provided by the Norwegian authorities, Turborouter will never be an ‘off-the-shelf’
product but will always need, by definition, further adaptations.

The Norwegian authorities acknowledge the difficulty in distinguishing between a commercial and a
pre-competitive product where the result of the activity is not a physical product but a new, altered
or improved process, service or procedure to be used internally. In their opinion, the activity that
has created these results may be classified as a pre-competitive development activity if it is not part
of the day-to-day operation of the company and not part of routine or periodic changes or improve-
ments.

The borderline between a pilot project, which could not be used commercially, and a commercial
final product seems very diffuse in the case at hand because the software needs to be adapted anew
for each new application specific to each final user. The Authority questions to what extent the
further development of the software programme Turborouter for use in developing applications
which serve concrete needs for the final users can be covered by the definition of applied research. It
is not clear to the Authority what would be considered as a commercial product and what would
fall under a prototype regarding the concrete application of the software programme Turborouter to
the specific needs of a given company.

The Authority doubts whether, due to the specific characteristics of the software programme Turbor-
outer, the development of each new application necessarily goes beyond the stage of pilot project to
be a new commercial product or whether, on the contrary, it constitutes applied research.

Furthermore, although the project as such was considered pre-competitive research, the RCN classi-
fied certain activities within Project 144214 ‘Library of optimisation routines for scheduling of ship-
ping’ such as map chart status or the writing and publishing of articles as industrial research. The
correctness of this classification seems doubtful.

— Doubts concerning the financing of the project and the aid intensities

As was the case of the previously mentioned projects, the comparison of the figures provided for as
the cost and financing of the project raises doubts as to whether the project only concerns research
activities or whether it covers part of the operational costs of the company, in this case of Beltship
Management and Iver Ships.

From the information provided by the Norwegian authorities, it seems that the object of the project
was to allow Marintek to use the two companies as an example to gain some more experience from
this kind of scheduling software in shipping organisations. In principle, this would imply that the
majority of the research work will be done by Marintek itself. It is the understanding of the
Authority that this research done by Marintek is covered by the rubric ‘Purchase of R&D’ in the
costs of the project and amounts to NOK 2 900 000. It follows logically that the work of the
personnel has an auxiliary function, to provide the researchers with the experiences acquired ‘on the
job’ while using the software tool Turborouter. In the understanding of the Authority, this informa-
tion should serve as a basis for the research of Marintek and should be processed into new algo-
rithms for advanced optimisation and scheduling of shipping operations. It does not seem that the
aim of the project was the development of a given prototype or pilot demonstrator. In such a situa-
tion, it seems unusual that the costs of personnel and indirect costs are higher than the cost of
purchasing R&D.

The Authority welcomes any comment regarding this issue.

26.10.2006

EN

Official Journal of the European Union

C 258/57

3) The necessity to open the formal investigation procedure

On the basis of the information available at this stage of the procedure, the Authority is not in the
position of ascertaining whether these projects were correctly classified as pre-competitive develop-
ment activities or whether, on the contrary, they were already too close to the market to be eligible
for state aid.

in particular
Furthermore, the Authority has doubts concerning the financing of the projects,
regarding the effective disbursement of the own contributions in kind of the beneficiaries of the
projects.

In light of the above, the Authority has doubts both as to whether the above-mentioned projects
have received aid in compliance with the R&D Guidelines of 1994 and as to whether the benefici-
aries have used the aid in contravention of the accepted appropriate measures on the scheme Indus-
trial R&D Programmes. On the basis of the definition in Article 1(g) in Part II of Protocol 3, aid used
by the beneficiary in contravention of a decision taken pursuant to Article 4(3) or Article 7(3) or (4)
individual aid awards
constitutes misuse of aid. This definition covers,
within a scheme approved by the Authority by means of appropriate measures.

in the Authority's view,

According to Article 4(4) in Part II of Protocol 3, the Authority shall decide to initiate the formal
investigation procedure where, after a preliminary investigation, it finds that doubts are raised as to
the compatibility of a measure with the functioning of the EEA Agreement. Furthermore, according
to Article 16 in Part II of Protocol 3, the Authority may in cases of misuse of aid open the formal
investigation procedure pursuant to Article 4(4) in Part II of Protocol 3.

With regard to the correct classification of the projects and the respective aid intensities, should the
Authority find out in the course of this formal investigation that the above-mentioned projects have
received aid which was not awarded on the basis of the aid scheme Industrial R&D Programmes, it
will consider these projects as individual aid awards which were not notified to the Authority in due
time. Any aid which is put into effect in contravention of Article 1(3) in Part I of Protocol 3, i.e.
that was not notified and authorised by the Authority prior to being put into effect, is considered
unlawful aid by virtue of Article 1(f) in Part II of the same Protocol.

Both in the case of misuse of aid and of the granting of unlawful aid which is incompatible with the
state aid rules of the EEA Agreement, the aid will have to be recovered from the beneficiaries.

b) Assessment of the projects as individual aid grants

1) Introduction

Should the granting of financial support by the RCN to the projects concerning the development of
the software programme Turborouter not be covered by the aid scheme Industrial R&D
Programmes, as assessed above, these measures will constitute individual aid and should have been
notified in accordance with Article 1(3) in Part I of Protocol 3 and will have to be assessed individu-
ally.

2) Compatibility

At this stage of the procedure, the Authority is not in the position of determining whether the
granting of aid to the projects related to the further development of the software programme
Turborouter can be considered compatible on the basis of the provisions of the R&D Guidelines as
amended by the Authority with Decision No 53/96/COL (25). For this reason, in the following, the
Authority will only recall provisions which may seem relevant for a possible assessment of these
grants in light of the R&D Guidelines.

On the basis of the provisions of Chapter 14 of the State Aid Guidelines ‘Aid for research and develop-
ment’, aid granted to firms for R&D may be regarded as compatible with the functioning of the EEA
Agreement by virtue of Article 61(3)(c) of the EEA Agreement which provides a derogation for aid
that facilitates the development of certain economic activities as long as it does not adversely affect
trading conditions to an extent contrary to the common interest.

(25) Should the granting of R&D aid to Project 40049 fall outside the scheme Industrial R&D Programmes, its compat-
ibility as individual aid can only be established on the basis of the EEA Agreement directly (see page 12 of this Deci-
sion).

C 258/58

EN

Official Journal of the European Union

26.10.2006

State aid for R&D should serve as an incentive for firms to undertake research activities in addition
to their normal day-to-day operations (26). In order to verify that the planned aid will induce firms to
pursue research which they would not otherwise have pursued, the Authority takes particular
account of quantifiable factors such as changes in R&D spending or in the number of people
assigned to R&D activities, market failures, other additional costs connected with cross-border coop-
eration and other relevant factors.

When examining the compatibility of an aid for research and development, under the R&D Guide-
lines, the Authority pays special attention to the type of research carried out, the beneficiaries, the
aid intensity or the accessibility to the results. The closer the aid is to the market, the more signifi-
cant the distortive effect of the state aid may be.

In order to determine the proximity to the market of the aided R&D, the Authority makes a distinc-
tion between fundamental research, industrial research and pre-competitive development activity. By
pre-competitive development activity is meant (27) ‘the shaping of the results of industrial research into a
plan, arrangement or design for new, altered or improved products, processes or services, whether they are
intended to be sold or used, including the creation of an initial prototype which could not be used commercially.
It may include conceptual formulation and design of other products, processes or services and initial demonstra-
tion projects or pilot projects, provided that such projects cannot be converted or used for industrial applications
or commercial exploitation’. The permissible gross aid intensity for such activities is fixed at 25 % of
the eligible costs.

in cases of R&D activity spanning industrial
According to Point 14.5.9 of the R&D Guidelines,
research and pre-competitive development activities, the permissible aid intensity will not normally
exceed the weighted average of the permissible aid intensities applicable to the two types of
research.

However, in the event of failure of the research concerned, the Authority, in line with past practice,
may allow a higher level of aid intensity since the project's failure reduces the risk of competition
and trade being distorted (28).

Under Annex II to Chapter 14, the R&D Guidelines, the Authority revised the concept of eligible
costs for the purpose of calculating the aid intensity to cover:

— personnel costs (researchers, technicians and other supporting staff employed solely on the

research activity)

— cost of instruments, equipment, and land and premises used solely and on a continual basis

(except where transferred commercially) for the research activity

— cost of consultancy and equivalent services used exclusively for the research activity, including

the research, technical knowledge and patents, etc. bought from outside sources

— additional overheads incurred directly as a result of the research activity

— other operating expenses (e.g. cost of materials, supplies and similar products) incurred directly

as a result of the research activity.

Should the granting of aid to any of these projects not be considered compatible on the basis of the
R&D Guidelines of 1996 or on another state aid provision of the EEA Agreement, any illegally
granted aid will have to be recovered from the beneficiaries, pursuant to Article 14 of Protocol 3.

3. Conclusion

In light of the above, the Authority has doubts as to whether all or any of the above-mentioned four
projects have received aid in compliance with the R&D State Aid Guidelines.

In particular regarding the projects related to the further development of the software programme Turbor-
outer, on the basis of the information available to it at this stage of the procedure, the Authority is not in
the position of ascertaining whether these projects were correctly classified as pre-competitive development
activities or whether, on the contrary, they were already too close to the market to be eligible for state aid.

The Authority has doubts regarding the real research costs of the projects. Should the Authority, in the
framework of the current investigation, find out that they were lower than alleged in the application for
funding to the RCN, the aid intensities will have to be reviewed.

(26) See Section 14.7 Incentive effect of R&D aid in Chapter 14 of the State Aid Guidelines, R&D Guidelines, as

amended in 1996.

(27) See Annex I to Chapter 14 of the State Aid Guidelines, R&D Guidelines, as amended in 1996.
(28) See Section 14.5.6 in Chapter 14 of the State Aid Guidelines, R&D Guidelines, as amended in 1996.

26.10.2006

EN

Official Journal of the European Union

C 258/59

Furthermore, the Authority also has doubts regarding the effective disbursement of all contributions in
kind from the beneficiaries.

The two concerns mentioned above with respect to the pre-competitive research projects may lead to the
conclusion that aid could have been granted for an amount exceeding 25 % of the real costs of the project.
As far as the industrial research project is concerned, this percentage can reach 50 %. Any amount
exceeding this figure not covered by the state aid rules on R&D aid might need to be recovered.

The Authority also doubts whether the beneficiaries have used the aid in contravention of the accepted
appropriate measures on the scheme Industrial R&D Programmes.

Therefore, in accordance with Articles 4(4), 10 and following and 16 in Part II of Protocol 3, the Authority
is obliged to open the formal investigation procedure provided for in Article 1(2) in Part I of Protocol 3.
The decision to open proceedings is without prejudice to the final decision of the Authority.

The Norwegian authorities should inform Marintek, Beltship Management, UECC and any other beneficiary
of possible state aid by means of a copy of this Decision —

HAS ADOPTED THIS DECISION:

Article 1

The EFTA Surveillance Authority has decided to open the formal investigation procedure pursuant to
Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement regarding the R&D aid granted
by the Research Council of Norway in connection with the development of the software programme
Turborouter.

The Norwegian Government is invited, pursuant to Article 6(1) in Part II of Protocol 3 to the Surveillance
and Court Agreement to submit its comments on the opening of the formal investigation procedure within
one month from the notification of this decision.

Article 2

Article 3

Other Contracting Parties to the EEA Agreement and interested parties shall be informed by the publishing
of a meaningful summary and the full text of this Decision in the EEA Section of the Official Journal of the
European Union and the EEA Supplement thereto, inviting them to submit comments within one month
from the date of publication of this Decision.

The Authority requests the Norwegian authorities to forward a copy of this letter to the recipients of the
aid immediately.

Article 4

This Decision is addressed to the Kingdom of Norway.

Article 5

This Decision is authentic in the English language.

Article 6

Done at Brussels, 8 March 2006.

For the EFTA Surveillance Authority

Bjørn T. GRYDELAND

President

Kurt JAEGER

College Member