2008/92/EC: Commission Decision of 10 July 2007 concerning an Italian State aid scheme to the Sardinian shipping sector C 23/96 (NN 181/95) and C 71/97 (N 144/97) (notified under document number C(2007) 3257) (Text with EEA relevance )
Date: 2007-07-10
Institutions: European Commission
Subjects: Italy, Sardinia, State aid, control of State aid, inland waterway shipping, maritime shipping, regional aid

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COMMISSION DECISION

of 10 July 2007

concerning an Italian State aid scheme to the Sardinian shipping sector C 23/96 (NN 181/95) and
C 71/97 (N 144/97)

(notified under document number C(2007) 3257)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2008/92/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,
88(2) thereof,

in particular

establishing the European
the first subparagraph of Article

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

Having, pursuant
concerned to submit their comments,

to those provisions, called on the parties

Whereas:

1. PROCEDURE

(1)

(2)

By letter of 24 June 1996 (1), the Commission informed
its decision to initiate the
the Italian authorities of
procedure provided for
the EC
Treaty (formerly Article 93(2)) with regard to an
unlawful aid scheme established by the region of
Sardinia in favour of
the
construction, acquisition, conversion, modification or
repair of ships (hereinafter original aid scheme).

in Article 88(2) of

shipping companies

for

After the procedure was opened, the Italian Government
sent its observations to the Commission in a letter dated
31 October 1996 (DG7-Transport A/23443). The
Sardinian regional authorities sent their observations in
letters dated 11 October 1996 (DG7-Transport A/21870)
and 22 January 1997. No other Member States or
interested third parties sent
their observations within
the time limit of one month after publication of the
decision to open the procedure.
It should be noted,
however, that some third parties submitted comments
outside this deadline.

(3)

On 21 October 1997, the Commission adopted Decision
98/95/EC, which establishes the incompatibility with the

(1) C 23/96 (NN 181/95), (OJ C 368, 6.12.1996, p. 2).

(4)

(5)

(6)

(7)

common market of the aid scheme in question (2). On 12
November 1997 (SG (97) D/9375), the Italian authorities
were informed of this decision.

the Commission
In a letter of 14 November 1997,
informed the
its decision to
Italian authorities of
initiate the procedure set out in Article 88(2), of the
EC Treaty (formerly Article 93(2)) with regard to
Sardinian Regional Law No 9 of 15 February 1996
which amends the original aid scheme implemented for
the benefit of shipping companies (3). The Italian auth-
orities submitted their comments on 16 January 1998
(DG7-Transport A/1221) and 23 December 1997 (DG7-
Transport A/144). No other Member States or interested
third parties sent their observations within the time limit
of one month after publication of the decision to initiate
the procedure.

In its judgment of 19 October 2000 (Joined Cases
C-15/98 and C-105/99 Italy and Sardegna Lines v
Commission) (4)
the European
Justice of
the Court of
Communities
annulled Decision 98/95/EC on the
grounds that it lacked an adequate statement of reasons
with regard to the effect on Community trade.

Following a letter
from the Commission dated 23
November 2006 (D 2006 224962) requesting infor-
mation from the Italian authorities, a response was sent
by e-mail on 8 March 2007 (TRENA/26193).

2. DESCRIPTION OF THE MEASURE

2.1. The original scheme

Following a complaint lodged in 1993, the Commission
learned of an aid scheme set up by the region of Sardinia
for shipping companies intending to build, purchase,
convert or repair ships.
took the specific form of
It
loans and leases granted on favourable terms that were
agreed initially only with companies whose head office,
domicile for taxation purposes and port of register were
situated in the region of Sardinia.

(2) OJ L 20, 27.1.1998, p. 30.
(3) C 71/97 (NN 144/97), (OJ C 386, 20.12.1997).
(4) European Court Reports, 2000, ECR I-8855.

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Regional Law No 20 of 15 May 1951 amended by Law No
15 of 11 July 1954

The scheme in question was set up by Sardinian Regional
Law No 20 of 15 May 1951 (hereinafter Law No
20/1951), subsequently amended by Regional Laws No
15 of 11 July 1954 (hereinafter Law No 15/1954) and
No 11 of 4 June 1988 (hereinafter Law No 11/1988).
Law No 20/1951, amended by Law No 15/1954,
provided for the setting up of a fund for loans to
shipping
to build, purchase,
intending
convert or repair ships. These loans were to be agreed
only with companies with their head office, country of
domicile for tax purposes and port of register within the
region of Sardinia.

companies

(c)

the undertaking should use the ports of the region as
the centre of its shipping activities, making them a
normal port of call as part of those activities and,
where regular services are operated,
these should
terminate or regularly call at one or more of those
ports;

(d) the undertaking should commit itself to carrying out
refitting work in the ports of the region, provided
that shipyards have the operational capacity and
force majeure,
there
that
are no grounds of
unavoidable
chartering requirements or obvious
economic or time constraints;

(8)

(9)

Such loans could not exceed 20 % of the investment in
cases of building, conversion or repair works for which
the applicant had already received aid under national
time. Where no such aid
legislation in force at
under national
loans
could not exceed 60 % of investment costs.

legislation had been awarded,

that

(10) Under Law No 20/1951, interest, commission and other
charges related to the loan could not exceed 4,5 % per
year of the loan where aid had already been received
under national
legislation, and 3,5 % in all other cases
(an average interest rate subsidy of 10-12 percentage
points). The capital was to be repaid in not more than
12 annual instalments commencing from the third year
following entry into service of the ship for which the
loan had been granted.

Regional Law No 11 of 4 June 1988

(11) Articles 99 and 100 of Law No 11/1988 introduced
substantive amendments to the aid scheme, but said
changes were not notified to the Commission. Since
the
therefore
constituted non-notified aid.

aid scheme had been amended,

it

(12)

The following conditions were added to those provided
for by Law No 20/1951 for the granting of aid to ben-
eficiary companies:

‘(a) that

the undertaking should have its head office,
administrative headquarters and shipping business
its main stores, depots and
and, where applicable,
accessory equipment permanently in one of
the
ports of the region;

(b) all the vessels owned by the undertaking should be in

the registry of one of the ports of the region;

(e) as

regards

the crewing of vessels with a gross
tonnage of more than 250 tonnes, the undertaking
should establish a special complement, comprising all
the seafarer categories needed to crew the vessel for
which it was
requesting aid, using solely crew
members registered in the general duty roster of
the port of registry, and to take from those rosters
all the crew required, whether general or special, the
only restrictions being those laid down by the
national regulations on the employment of seafarers
…’

(13)

Law No 11/1988 also introduced the option whereby the
Sardinian authorities could grant a contribution to the
costs of a lease where a shipping company had opted for
a lease instead of a loan. The contribution is equal to the
difference between the interest actually owed on a loan,
corresponding to the annual amortisation rate, calculated
at the commercial reference interest rate for shipping in
Italy and the interest payable on the same loan calculated
at 5 % (an average interest rate subsidy of about 10
percentage points).

(14) At the end of the contract, the ship for which the contri-
bution was paid may be purchased by the leasee by
paying an amount equal to 1 % of the purchase price.
According to the Italian authorities, (letter of 5.6.1988
and reply of 1.7.1998), no lease was signed under Law
No 11/1988.

loans

(15) According to information in the possession of

the
Commission,
sum of
amounting
ITL 12 697 450 000 (approximately EUR 6,5 million)
have been granted since the entry into force of
the
original aid scheme. The last
financing decision was
taken in December 1991.

the

to

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(16)

In their latest letter of 8.3.2007, the Italian authorities
claimed that financing granted on the basis of the 1988
law concerned the acquisition of ships of gross tonnage
between 24 and 138 tonnes. These ships were said to be
mainly for the purpose of costal maritime transport
within a market that had not yet been opened up for
competition at the time.

2.2. Doubts raised over the original aid scheme
subject to procedure C 23/96

(17)

In the document initiating the procedure on 24 June
1996, the Commission expressed serious doubts over
the compatibility of the aid with the common market
on the basis of
the
following reasons:

information available to it

for

— the aid scheme contained provisions which involved
discrimination on the grounds of nationality in that
ship operators were obliged, inter alia, as an effective
condition of aid, to employ Sardinian seafarers on
board their vessels,

— the scheme conflicted with the principle of freedom
of establishment inasmuch as the aid was conditional,
inter alia, on operators having their head office in
Sardinia,

(c)

the loan/lease
technical changes were introduced:
duration could not exceed 12 years and had to be
for 70 % less than the envisaged cost, with a ceiling
of ITL 40 billion (approximately EUR 20 million) per
ship. The aid was granted in the form of a contri-
bution on the interest equal to the difference between
the repayment instalment calculated at the reference
rate for loans to the shipping sector in Italy and the
instalment calculated at a rate equal to 36 % of the
same reference rate.

(d) a system was introduced to check that the aid was
not granted twice (by the national authorities and by
the regional authorities) for the same loans/leases.

2.4. Doubts expressed during proceeding C 71/97

(19)

In its Decision of 14 November 1997 the Commission,
while noting that
the notified aid scheme no longer
contained discriminatory provisions based on breach of
the right to establishment, expressed serious doubts over
the compatibility of the amendments with the common
market for the following reasons:

— risk of conflict with Community legislation on ship-

building in force at that time (5),

— conflict between the aid scheme and the guidelines
on State aid to maritime transport current at that
time (6),

— the scheme involved aid to encourage investment in
ships in a way which is liable to infringe Community
law.

— existence of unlawful operating aid, granted in the
form of leases on favourable terms for the acquisition
of ships.

2.5. Commission Decision of 98/95/EC

2.3. The scheme amended by Law No 9
of 15 February 1996

(20)

(18)

To make Law No 20/1951 compatible with Community
law and the relevant Directives, the regional authorities
amended the original aid scheme by means of Regional
Law No 9 of 15 February 1996 (hereinafter Law No
9/1996) as follows:

‘(a)

to the

amendments

the Commission, without
In Decision 98/95/EC,
reference
added subsequently,
found the original aid scheme constituted State aid for
the purposes of Article 92(1) of the EC Treaty, inasmuch
as:
the beneficiary companies are relieved of a
financial burden which they would normally bear
(normal commercial interest rates and other charges on
loans/leases); (b) the burden is borne by State resources
(the Sardinian authorities); (c) the aid is selective (being
reserved to the shipping sector); and (d) the aid affects
trade between Member States.’

(a)

the provisions which involved discrimination on the
grounds of nationality were removed;

(b) a new condition was

a
preference for innovative, high technology vessels
was agreed;

introduced whereby

(5) Council Directive 90/684/EEC, of 21 December 1990, on aid to
shipbuilding (OJ L 380, 31.12.1990) and Council Regulation
(EC) No 3094/95 of 22 December 1995, on aid to shipbuilding
(OJ L 332, 30.12.1995), amended by Regulation (EC) No 1904/96
(OJ L 251, 3.10.1996).

(6) Financial and fiscal measures concerning shipping operations with
ships registered in the Community, SEC(89) 921 final of 3 August
1989 and Community guidelines on State aid to maritime transport
(OJ C 205, 5.7.1997).

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(21) With regard to letter (d),

the Decision initiating the
proceedings states that ‘more than 90 % of the goods
from Member States are transported towards Sardinia
by sea and more than 90 % of goods from Sardinia are
transported towards Member States by the same route. It
was also noted that 65 % of tourist traffic (passengers
and vehicles) between Member States and Sardinia are
managed by shipping companies.’ The Commission also
noted that the observations made by the Italian auth-
orities did not contest these data, or the categorisation
of the aid scheme as State aid within the meaning of
Article 92(1).

(22)

In light of the above, the Commission concluded that:

1999, island cabotage in the Mediterranean was excluded
from the liberalisation of maritime transport service
within Member States.

(25)

that

the Commission, despite
The Court also noted that
pointing out
the aid scheme to the Sardinian
shipping companies was in breach of the fundamental
principles of
freedom of establishment and the pro-
hibition of discrimination on grounds of nationality,
failed to use this breach as grounds for demonstrating
the distortion of trade between Member States.

(a)

the financial aid granted under Law No 11/1988
constituted State aid under Article 92(1) of
the
Treaty (now Article 87(1)),

(26)

In consequence of the judgment of 19 October 2000 the
formal investigation procedure initiated by the decision
of 24 June 1996 has been reopened. The Commission
must therefore adopt a new final decision.

(b) the aid was granted in breach of Article 93(3) of the

EC Treaty (Article 88(3)), and

(27)

(c)

in the case in point, none of
provided for in Article 92 could be applied.

the derogations

The Commission therefore ordered that
Italy should
recover the unlawful aid granted on the basis of the
1988 aid scheme (Article 2).

2.6. The judgment of 19 October 2000
and its legal consequences

In its judgment of 19 October 2000 (Joined Cases
C-15/98 and C-105/99 Italy and Sardegna Lines v
Commission) (7)
the European
Justice of
the Court of
Communities
annulled Decision 98/95/EC on the
ground that it lacked an adequate statement of reasons
with regard to the effect on Community trade.

(28)

(23)

(24)

The Court found that the Commission, in limiting itself
to stating that the aid was selective and reserved to the
shipping sector in Sardinia,
that more than 90 % of
goods transport between the mainland and Sardinia
took place by sea and that 65 % of tourist transport
(passengers with cars) was carried out by shipping
companies,
failed to provide any information on the
competition between the Sardinian shipping companies
and companies established in other Member States.
According to the Court, the Commission failed to take
into account, in that respect, the fact that, until 1 January

(7) European Court Reports, 2000, ECR I-8855.

98/95/EC,

annulment

of Decision

In addition to adopting a new Decision following the
Court’s
the
Commission must also decide as to the amendment to
be made to the scheme introduced by Law No 9/1996,
in respect of which the investigation procedure of 14
November 1997 was initiated. Although at the time it
had decided to examine both schemes separately, the
Commission must now examine these schemes jointly
in the present Decision in order to determine their
overall implications.

3. COMMENTS BY ITALY

3.1. Observations on the original aid scheme
submitted in the context of procedure C 23/96

In procedure C 23/96, the Italian authorities informed
the Commission in a letter of 31 October 1996 of
changes that they had made to the original aid scheme
to make it, in their opinion, compatible with Community
law. The main amendment was the adoption of Regional
Law No 9/1996 that removed discriminatory provisions
based on nationality and also provisions that were in
breach of
freedom of establishment. The authorities
also notified the Commission that they had introduced
a direct control mechanism to rule out the possibility of
aid being granted twice (by the national authorities and
by the regional authorities).

(29)

In its letters of 11 October 1996 and 22 January 1997,
the regional authorities justified the need for measures
arising out of amendments to Law No 9/1996, inter alia,
by the difficult economic conditions in Sardinia, which is
an ‘Objective I’ region.

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3.2. Observations on the modified aid scheme
submitted in the context of procedure C 71/97

companies operating within the shipping sector and
established in Sardinia.

(30) As to the observations submitted in the context of
procedure C 71/97, the Italian authorities pointed out,
first, that they had no way of knowing the Community
law referred to by the Commission in its decision to
initiate
that
Council Regulation (EC) No 3094/95 (8), amended by
Council Regulation No 1904/96, and the Community
Guidelines on State aid to Maritime Transport of 1997
had been published after
the adoption of Law No
9/1996.

investigation

procedure,

arguing

the

(31)

Secondly, Italy emphasised that the measures envisaged
by Law No 9/1996 had not been implemented and that
no financial commitments had been assumed with third
the specified measures
parties.
were necessary to allow for the absence of economies
of scale in the goods and passenger maritime transport
sector in an island region such as Sardinia.

Italy also claimed that

(32)

In their conclusion, the Italian authorities declared them-
selves willing to amend the legislation and to respect all
Community laws in force.

4. ASSESSMENT OF THE AID

4.1. Assessment of the original scheme applicable
during the period 1988-96

Existence of an unlawful new State aid

(33)

The Commission considers that, by failing to notify the
aid scheme in question in favour of companies registered
in Sardinia intending to build, acquire, convert, modify or
repair ships, the Italian authorities failed to fulfil their
obligations under Article 88(3) of the Treaty (formerly
Article 93(3)). Even though the scheme had been set up
the Treaty, Law No
before the entry into force of
11/1988
scheme
aid
substantially
introduced by Laws No 20/1951 and No 15/1954. The
amendments introduced in 1988 should have therefore
been notified to the Commission and therefore constitute
new non-notified aids. Since this characterisation was not
contested by the Italian authorities in their comments
following the initiation of the procedure on 24 June
1996 it is therefore confirmed in this Decision.

amended

the

(34)

The Commission finds that
the measure in question
constitutes State aid within the meaning of Article
87(1) of the Treaty. The Sardinian companies effectively
benefited from interest
rates more favourable than
market rates and a reduction in costs relating to the
they were therefore relieved of a
loans and leases;
financial burden that they would normally have had to
bear. The financial burden was borne by public resources
and the aid was selective because it was reserved to

(8) See footnote No 5.

(35)

(36)

(37)

The Commission also observes that the measure affected
trade between the Member States. The scheme im-
plemented by the Italian authorities concerns Sardinian
shipping companies in general, whether
involved in
cabotage activities or international transport. While it is
true that regulation No 3577/92 (9), which liberalised the
maritime cabotage service market within the Community,
excluded the liberalisation of cabotage with Mediter-
ranean islands until 1 January 1999, it is also true that
this Regulation did not exclude from its scope changes in
trade in the maritime service market between different
Member States, in particular between France, Spain and
mainland Italy. It should be noted in this regard that the
aid in question was not
to
maritime services carried out within Italian territorial
liberalised from 1.1.1999, but also concerned
waters,
Sardinian shipping companies that carried out
inter-
national maritime transport services, which had already
been liberalised in 1986 (10), so that such companies
in competition with other
could therefore operate
Community operators.

limited to cabotage,

i.e.

the Commission (11)
Information in the possession of
shows that between 1992 and 1997, maritime traffic
existed in the form of merchant shipping (and cruise
shipping)
leaving and entering Sardinian ports, to and
from other EU and non-EU destinations. In particular, a
French company operated out of Toulon bound for
Sardinia and two Italian companies operated from
Corsica to Sardinia. These circumstances
show that
during that period (between 1988 and 1996) there was
an effect on international maritime transport services
trade between Italy and certain Member States.

two cases

letter of 8.3.2007, the Italian authorities
In their final
claimed that
finance granted under Law No
the
11/1988 concerned ‘the purchase of vessels with gross
tonnage between 24 and 138 tonnes’; these ships were
reportedly mainly used for
the purpose of coastal
maritime transport activities within a market that was
in at
not at the time open to competition. However,
the
least
applied for
the
transporting
purposes of acquiring ferries used for
passengers
and the
and vehicles between Sardinia
mainland, which were able to compete with other
national and Community operators. The Italian auth-
orities stated that they were not in possession of any
information on goods and passenger
traffic between
Sardinia and the rest of Italy and between Sardinia and
other Community countries for the period in question.

scheme was

(9) Council Regulation (EEC) No 3577/92 of 7 December 1992,
applying the principle of freedom to provide services to maritime
(OJ L 364,
transport within Member States (maritime cabotage)
12.12.1992).

(10) Council Regulation (EEC) No 4055/86 of 22 December 1986
applying the principle of freedom to provide services to maritime
transport between Member States and between Member States and
third countries (OJ L 378, 31.12.1986).

(11) Information recorded by the Olbia Harbour Master Office.

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(38)

It should also be noted that Regulation No 3577/92 on
cabotage did not rule out the existence of competition
between companies in the maritime transport market
operating between Sardinia and the Italian mainland
during the period prior to 1 January 1999 because
foreign companies were entitled to carry out maritime
cabotage services in Italy, subject to registering their ship
there, but were not able to benefit from the aid schemes
reserved for Sardinian shipping companies. This scheme
effect of discouraging shipping
therefore had the
companies from other Member States from opening
cabotage
in Italy to carry out maritime
branches
services with Sardinia,
they
that
the fact
would have been unable to benefit from the aid while
having to compete with other operators who were able
to obtain this aid.

in view of

Non-applicability of
87(2) and (3)

the derogations provided for in Article

(39)

the following reasons, none of

For
the derogations
provided for in Article 87(2) and (3) (formerly Article
92(2) and (3)) may be applied.

(43)

The aid could not therefore benefit from the derogation
in Article 87(3)(a).

(44) Nor may the derogation in Article 87(3)(c) on aid for the
purpose of promoting the development of
certain
economic activities be relied upon since the scheme in
question does not respect Community guidelines in force
during the period 1988-96. The relevant regulations in
force at the time, i.e., Chapter II of Annex I to the 1989
guidelines on State aid to shipping companies (13),
provided that
such aid may be granted on the
condition that it did not alter trade conditions to an
seventh
contrary to common interest. The
extent
‘… The
paragraph of
states
common interest would be served by measures aiming
above all at maintaining ships under the Community flag,
in other words by countering the tendency to use third
in particular by improving technological
country flags,
equipment
as many
Community seafarers as possible on board such ships’.
In this case,
the Italian authorities did not provide
enough information to show that the original Sardinian
regional scheme could be justified by improving safety
on the
employment of
Community seafarers.

above guidelines

safeguarding the

secondly, by

recruiting

ships or

and,

the

(40)

The Italian authorities stated that the aid was required to
allow the development of a region beset by difficult
economic circumstances.

(45)

applicable

(41) Although Sardinia is a region eligible for regional aid, the
derogation provided for in Article 87(3)(a), of the Treaty
cannot be applied because the aid in question was not
granted for the purpose of promoting regional devel-
opment but simply to benefit shipping companies. The
Italian authorities failed to demonstrate sufficiently how
the aid schemes benefiting Sardinia shipping companies
enabled development of the region under the terms of
Community laws
the
Commission communication on the method of appli-
to regional aid (12).
cation of Article 92(3)(a) and (c)
Although the region of Sardinia was included in the
list of proposed regions for
the purpose of Article
92(3)(a),
(see Annex I to the above mentioned Com-
it has not been shown that the measure
munication),
was necessary as an aid to initial investment or to job
it could be considered a short-term
creation, or that
operational
for particular or
to compensate
aid
permanent regional disadvantages, allowing sustainable
and balanced development without giving rise to excess
capacity in the sector in question.

time,

that

i.e.

at

(42)

The communication also states that any regional aid
should respect the Community guidelines laid down for
given industrial sectors such as the shipbuilding sector,
which is not the case in the aid scheme in question, as
will be shown below.

for

companies

calculated within limits

Chapter II(6) of Annex I to the 1989 guidelines on State
aid to shipping companies provided that aid could be
the building,
granted to shipping
conversion or repair of ships only on condition that
they were
established by
Community law and in particular by Council Directive
87/167/EEC of 26 January 1987 on aid for
ship-
building (14) and by Council Directive 90/684/EEC (15)
and Council Regulation (EC) No 3094/95 (16). Article 4
of Directive 87/167/EEC provided as follows: production
aid in favour of shipbuilding and ship conversion may be
common market
considered
the total amount of aid granted in
provided that
support of any individual contract does not exceed,
in
grant equivalent, a common maximum ceiling expressed
as a percentage of the contract value before aid, here-
inafter referred to as the ceiling.

compatible with the

(46)

The national authorities are responsible for ensuring
compliance with Community
law on aid to the
shipyards to which the Commission may not grant dero-
gations. Since this clearly constitutes a compatibility
condition for the aid in question,
the Member State
must demonstrate compliance with Community law by
providing ‘all the information to enable the Commission
to verify that the conditions for the derogation sought
are fulfilled’
(ECJ, Case C-364/90 Italy v Commission
[1993] ECR I-2097, paragraph 20 et seq.).

(12) Commission communication on the method for the application of
Article 92(3)(a) and (c),
(OJ C 212,
12.8.1988), amended in 1990 and 1994 (OJ C 163, 4.7.1990
and OJ C 364, 20.12.1994).

in particular Section I(6)

(13) SEC(89) 921 final of 3 August 1989.
(14) OJ L 69, 12.3.1987, p. 55.
(15) OJ L 380, 31.12.1990, p. 1.
(16) OJ L 332, 30.12.1995, p. 1. Regulation modified by Regulation

(EC) No 1904/96 (OJ L 251, 3.10.1996, p. 5).

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(47)

(48)

(49)

Since the Italian authorities have not supplied any infor-
mation as to whether the total amount of aid granted
respects the ceiling laid down in Article 4 of Directive
87/167/EEC (17), and in the absence of any other infor-
mation concerning compliance of the original measure
with both the above Directives and Article 5 of Regu-
lation (EC) No 3094/95 (18), the Commission is bound to
conclude that the aid does not comply with shipbuilding
guidelines (19) either.

Furthermore, these derogations cannot be relied upon in
order to authorise an aid scheme that is contrary to the
general principles of
the Treaty. The Commission
considers that the aid scheme to Sardinian shipbuilders
is incompatible with Community law due to the fact that
several of the supplementary conditions introduced by
Law No 11/1988 breached the fundamental principles
of freedom of establishment (Article 52) and the pro-
hibition of any discrimination based on nationality
(Article 6 and Article 48(2)).

(51)

Contrary to Article 52 of the Treaty, the aid scheme
required not only that the beneficiary company should
be established in Sardinia, but also that it should have its
administrative headquarters and shipping business, as
well as its main stores, depots and ancillary installations
permanently in one of the ports of the region. It also laid
down that all vessels owned by the beneficiary company
(and not only those for which a loan was granted under
the scheme) should be registered in Sardinia.

in Joined Cases C 15/98 and C 105/99
judgment
(paragraph 19), in the case of ships with gross tonnage
greater than 250 tonnes, the undertaking should recruit a
minimum complement of crew members registered in
the general duty roster of the port of registry. The ben-
eficiary company was therefore obliged to recruit a
certain percentage of
seafarers even if other
local
seafarers were able to carry out the required work, thus
breaching the principle that prohibits any discrimination
on grounds of nationality. It therefore follows that the
aid in question is contrary to the fundamental principles
of Community law.

4.2. Assessment of the original scheme amended by
Law No 9 of 15 February 1996 in force from 1996

Existence of State aid

The Commission considers that the scheme amended by
Law No 9/1996 constitutes State aid within the meaning
of Article 87(1) for the following reasons: (a) the ben-
eficiary companies are relieved of a financial burden that
to bear by means of
they would normally have
interest rates
favourable terms on normal commercial
and other charges on loans/leases;
this burden
(b)
continues to be borne by state resources; (c) the aid is
selective (being reserved to companies operating in the
shipping sector; and (d) the aid affects trade between
Member States because the amended scheme concerns
shipping companies aiming to buy, build and convert
ships used for goods and passenger transport services
with Sardinia and other Sardinian islands as
their
departure and destination points. As indicated above,
companies that may effectively benefit from the aid do
not operate only within the cabotage market, liberalised
from 1.1.1999, but also in the international maritime
transport market,
In any
event, there is no doubt that this scheme continues to
affect competition within a sector that has been fully
liberalised since 1999 inasmuch as it remains in force.

liberalised from 1986 (20).

(50)

Furthermore, as provided for in Article 99(e) of Law
11/1988 and as observed by the Court of Justice in its

(17) Article 4 specifies the following: production aid in favour of ship-
building and ship conversion may be considered compatible with
the common market provided that the total amount of aid granted
in support of any individual contract does not exceed,
in grant
equivalent, a common maximum ceiling expressed as a percentage
of the contract value before aid, hereafter referred to as the ceiling.
(18) Paragraph 1: Aid for shipbuilding and ship conversion, excluding
repair granted to ship-owners or third parties in the form of State
loans and guarantees, may be considered compatible with the
common market if it complies with the OECD Understanding on
Export Credit for Ships (1) or with any agreement amending or
replacing that Understanding […]. Paragraph 3: Aid granted by a
Member State to ship-owners or to third parties in that State for the
building or converting of those ships may not distort or threaten to
distort competition between shipyards in that Member State and
shipyards in other Member States in the placing of the orders.
(19) With regard to the application of provisions regarding shipbuilding,
it should be observed, as the Advocate General stated in his
that although aid to shipbuilding
Opinion (paragraphs 34-38),
the Commission rightly
may include an aid to shipbuilders,
considered the 1988 aid scheme as aid to shipbuilders
that
should be examined only in the light of the less demanding obli-
gation imposed by the Treaty because the Italian authorities were in
breach of the obligation to notify, provided for by Article 11 of the
above Directive.

(52) On the basis of information sent by the Italian auth-
orities in October 1996 and January 1997, no bene-
ficiary has received any aid under Law No 9/1996.
the
Since such aid was not granted in the past,
Commission considers that it is not necessary to assess
compatibility with Community laws in force at the time
for the purposes of the present Decision. However, given
that the aid could be granted in the future, it is necessary
to determine its compatibility with Community laws in
force, i.e. the 2004 Community guidelines on State aid to
maritime transport (21) (hereinafter: the 2004 Community
guidelines).

(20) Council Regulation (EEC) No 4055/86 of 22 December 1986,
applying the principle of freedom to provide services to maritime
transport between Member States and between Member States and
third countries (OJ L 378, 31.12.1986).

(21) Commission Communication C(2004)43 — Community guidelines

on State aid to maritime transport (OJ C 13, 17.1.2004).

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Incompatibility of the modified scheme

(53)

of

the

principle

The modified aid scheme no longer contains provisions
involve discrimination based on nationality or a
that
breach
The
the amended
Commission nevertheless considers that
scheme does not fulfil the conditions laid down by the
2004 Community guidelines and cannot benefit from the
derogations provided for in Article 87(3)(a) and (c), for
the reasons set out below.

establishment.

of

equivalent, a common maximum aid ceiling expressed as
a percentage of the contract value before aid […]’. In
view of the fact that Italy has not provided any infor-
mation as to whether the total amount of all forms of
aid granted in support of a any particular contract does
not exceed,
in grant equivalent, a common ceiling
expressed as a percentage of the contract value before
aid, it must be found that the measure does not comply
with Article 3(1).

(54) According to paragraph 5 of

the 2004 Community
tend as a
guidelines, subsidies paid for fleet renewal
In this particular
general rule to distort competition.
case,
the subsidies in
the Commission considers that
question are not part of any structural reform aiming
to reduce overall capacity nor are they aiming to
improve equipment on board the ships or promote the
use of safer ships. In this regard, the fact that, under the
amended aid scheme, the subsidies are earmarked for
‘innovative and high technology transport’ methods
does not make it possible, in the absence of a definition
of
to
the said technologies and associated expenses,
assess the effective scope of the new amendment.

(58)

Furthermore, under Article 3(4) of Regulation (EC) No
‘Aid in the form of state-supported credit
1540/98:
facilities granted to national and non-national shipowners
or third parties for the building or conversion of vessels
may be deemed compatible with the common market
and shall not be counted within the ceiling if
it
complies with the terms of OECD Council Resolution
of 3 August 1981 (OECD Understanding on Export
Credits for Ships) or with any agreement amending or
replacing that Understanding’. The Commission is never-
theless in possession of information indicating that the
aid provided for by the amended scheme respects the
OECD Council resolution of 3 August 1981.

(55)

(56)

(57)

regional

The Commission considers that the scheme cannot be
described as
aid within the meaning of
paragraph 6 of
the regional Community guidelines
either. Although Sardinia is a disadvantaged region, the
Italian authorities have not sufficiently demonstrated that
the region derives an advantage from the scheme in
the 2004 Community
question (Chapter 5(4) of
guidelines)
complies with
scheme
or
Community rules on regional aid in force (22).

that

the

The Commission also considers that, for the reasons set
out above, the aid scheme is prejudicial to the economies
of other Member States and distorts competition between
Member States contrary to the common interest (Chapter
2 of the 2004 Community guidelines).

The Commission also observes that, according to the
2004 Community guidelines, any aid to investment
must comply with the Community provisions applicable
i.e. Regulation (EC) No
in the shipbuilding sector,
1540/98 (23).
It may be observed that Article 3(1) of
‘Until 31 December 2000,
this Regulation states:
production aid in support of contracts for shipbuilding
ship repair, may be
and ship conversion, but not
common market
considered
provided that
forms of aid
the total amount of all
granted in support of any particular contract (including
the grant equivalent of any aid granted to these ship-
in grant
third parties) does not exceed,
owners or

compatible with the

(22) Guidelines on national regional aid for 2007-2013 (OJ C 54,

4.3.2006, p. 13).

(23) Council Regulation No 1540/98 of 29.6.1998, on aid to ship-

building (OJ L 202, 18.7.1998).

to the

industrial

application of

(59) Under Article 6 of Regulation (EC) No 1540/98, aid
granted for
innovation in existing shipbuilding, ship
conversion and ship repair yards may be deemed
compatible with the
common market up to a
maximum aid intensity of 10 % gross provided that it
relates
innovative
products and processes that are genuinely and substan-
tially new,
i.e. are not currently used commercially by
other operators in the sector within the Community,
and which carry a risk of
technological or industrial
failure. This aid must also be limited to supporting
expenditure on investment and engineering activities
directly and exclusively related to the innovative part of
the project and their amount and intensity is limited to
the minimum necessary taking into account the level of
risk associated with the project. However, as indicated
above, the fact that the amended aid scheme states that
the aid is destined for ‘innovative and high technology
transport’ methods does not make it possible to assess in
the absence of any definition of the said technologies and
associated expenses,
amendment
introduced. The Commission must
therefore conclude
that aid scheme, even as amended, does not comply
with the provisions on shipbuilding.

scope of

the

the

(60)

Lastly, the derogations provided for in Article 92(3)(a)
and (c) cannot be applied because it is the responsibility
the national authorities to show compliance with
of
Community law on aid to shipbuilding,
from which
the Commission cannot derogate. Since this clearly
constitutes a condition of compatibility of the aid in
question,
demonstrate
compliance with Community law by providing full infor-
mation to enable the Commission to verify that
the
conditions for the derogation sought are fulfilled.

the Member

State must

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(61)

(62)

(63)

(64)

Conclusions

In conclusion, the original aid scheme as it was applied
during the period 1988-96 is unlawful and incompatible
with the common market.

It follows that the amount of aid arising out of the
granting of loans (for a total of ITL 12 697 450 000)
on favourable terms under Regional Law No 11/1988
must be repaid by the beneficiaries in accordance with
the procedures and provisions of Italian law. Since no
subsidy was paid for leases, it is not necessary to arrange
for any recovery.

the total amount that the beneficiaries would have paid for
interest and ancillary costs under normal market conditions
applied at the date on which the loans were taken out and
the total interest and ancillary costs actually paid by the bene-
ficiaries.

2.
The recovery shall be carried out without delay and in
accordance with procedures of domestic law provided that
these allow the immediate and effective execution of
this
Decision. The aid to be recovered includes interest from the
date on which the aid was made available to the beneficiaries
until the date of recovery.

The aid to be recovered includes interest from the date
on which they were made available to the beneficiaries to
the date of their recovery.

For payment instalments on loans still outstanding at the
3.
date of notification of this Decision, Italy shall take steps to
ensure that the borrower pays the balance of the instalments
under normal market conditions.

Because the Commission has not been able to quantify
directly the aid element or the total amount of the aid to
be recovered from each beneficiary, the Italian authorities
are
information and
for obtaining the
notifying the Commission of the sums to be recovered
from each beneficiary.

responsible

Article 3

The State aid scheme in the form of loans and leases issued to
shipping companies by Law No 20 of 15 May 1951 of the
region of Sardinia, as amended by Regional Law No 9 of 1966,
is incompatible with the common market.

(65) As regards the aid scheme amended by Law No 9/1996
and in force from 1996, the Commission notes that no
aid was paid from that year, but concludes that
the
scheme constitutes State aid incompatible with the
common market.
is not necessary to arrange for
recovery in view of the fact that no subsidy was paid
for this purpose,

It

HAS ADOPTED THIS DECISION:

Article 4

Italy shall abolish the aid scheme described in Articles 1 and 3.

Article 5

The Italian State shall
months of
measures taken to comply with it.

the date of notification of

inform the Commission within two
the

this Decision of

Article 1

Article 6

The State aid in the form of
loans and leases granted to
shipping companies under Law No 20 of 15 May 1951 of
the region of Sardinia, as amended by Law No 11 of 4 June
1988, is incompatible with the common market.

Article 2

Italy shall take all necessary measures to recover from the
1.
beneficiaries the aid described in Article 1, made available to
them unlawfully and corresponding to the difference between

This Decision is addressed to the Italian Republic.

Done at Brussels, 10 July 2007.

For the Commission

Jacques BARROT
Vice-President