Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice on State aid with regard to the sale and rent by the Norwegian authorities of Lista air base
Date: 2007-10-25
Institutions: EFTA Surveillance Authority
Subjects: EFTA, Norway, State aid, control of State aid, exchange of information, hiring, military base, sale

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Official Journal of the European Union

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Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Agreement
between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice
on State aid with regard to the sale and rent by the Norwegian authorities of Lista air base

(2007/C 250/09)

By means of Decision No 183/07/COL of 6 June 2007, 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 Surveillance
Authority and a Court of Justice (‘the 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
Rue Belliard 35
B-1040 Brussels

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

PROCEDURE

The EFTA Surveillance Authority (hereinafter referred to as ‘the Authority’) learnt about the sale of the Lista
air base by way of a report issued by the Office of the Auditor General which concludes that the Norwegian
Defence Estates Agency (hereinafter the ‘NDEA’) is unable to produce reliable evidence documenting that
Lista air base was sold at market value.

On 14 September 2005, the Authority sent a letter to the Norwegian authorities requesting information
regarding the sale of Lista air base located in the municipality of Farsund in Southern Norway.

By letter dated 28 October 2005 from the Norwegian Mission to the European Union, forwarding two
letters, respectively dated 26 October 2005 from the Ministry of Modernisation and 24 October 2005 from
the Ministry of Defence, the Norwegian authorities replied to the questions raised by the Authority. This
letter was received and registered by the Authority on 29 October 2005.

By letter dated 28 March 2007, the Authority requested the Norwegian authorities to communicate addi-
tional information.

By letter dated 4 May 2007, received and registered by the Authority on the same day, the Norwegian autho-
rities provided further information.

ASSESSMENT OF THE MEASURES

The Decision No 183/07/COL concerns two distinct measures: firstly, the sale, and secondly, the lease of
Lista air base.

Sale of Lista air base

On 12 September 2002, the NDEA sold Lista air base to Lista Flypark AS. The sale resulted in a net disbur-
sement from the Norwegian State to Lista Flypark AS of NOK 10 875 000. Two sets of evaluations had
been carried out by two distinct independent evaluators: Verditakst had estimated that the market value of
the property was of NOK 11 000 000 whereas OPAK had concluded to a market value of
NOK 32 000 000.

The sales price was agreed on the basis of the valuation carried out by Verditakst, namely NOK 11 000 000.
An amount of NOK 7 500 000 was deducted from the value of the property to take into account the
works that needed to be carried out in order to comply with applicable fire safety standards. The sales price
of the property was therefore brought down to NOK 3 500 000.

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However, in addition to the above, the Norwegian authorities contractually agreed to compensate the buyer
of the air base for the following costs:

— NOK 3 500 000 corresponding to the need to carry out works relating to technical installations (such

as electrical transmission lines),

— NOK 5 500 000 corresponding to works to be carried out for the development of new infrastructure,

and

— NOK 5 375 000 corresponding to compensation for the lease agreement entered into with LILAS (see

below, Section Leasing out of Lista air base).

The total compensation agreed and amounting to NOK 14 375 000 was set off against the sales price of
NOK 3 500 000. The Norwegian authorities thus actually paid the purchaser NOK 10 875 000.

Transfer of the property took place on 9 December 2002.

The Authority's doubts relate to both the value of the property per se (i.e. the choice of the Verditakst report
over the OPAK report) and the justification for the compensations which the Norwegian authorities contrac-
tually agreed to.

Leasing out of Lista air base

On 27 June 1996, the NDEA entered into a ten year lease agreement with Lista Airport Development AS
(‘LAD’) to enter into effect on 1 July 1996 until 30 June 2006 with the possibility for LAD to rent the air
base for another ten year period. LAD was owned by the Municipality of Farsund (20 %) and local investors
(80 %).

The lease agreement was later transferred to Lista Lufthavn AS (‘LILAS’) which had been established on
3 May 1996.

According to Articles 3(1) and 3(2) of the lease agreement, LILAS would rent a specified part of the build-
ings and the airstrip at an annual price of NOK 10 000.

The Norwegian authorities admitted that ‘LILAS' rent is also extremely low and below market price (NOK 10 000
a year)’.

Consequently, the Authority has doubts whether the rent paid by LILAS reflected fair market value.

CONCLUSION

In the light of the foregoing considerations, the Authority decided to open the formal investigation proce-
dure in accordance with Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement. Inter-
ested parties are invited to submit their comments within one month from publication of this decision in
the Official Journal of the European Union.

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Official Journal of the European Union

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EFTA SURVEILLANCE AUTHORITY DECISION

No 183/07/COL

of 6 June 2007

to initiate the procedure provided for in Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement with
regard to the sale and the rent of Lista air base

(Norway)

THE EFTA SURVEILLANCE AUTHORITY (1),

2. Description of the sale

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 in Part I and Articles 10 and 13 in
Part II of Protocol 3 to the Surveillance and Court Agreement,

Having regard to the Authority's Guidelines (4) on the applica-
tion and interpretation of Articles 61 and 62 of the EEA Agree-
ment, and in particular, the Chapter on State Aid elements in
sales of land and buildings by public authorities,

Whereas:

I.

FACTS

1. Procedure

The Authority learned about the sale of the Lista air base by
way of a report issued by the Office of the Auditor General
which concludes that the Norwegian Defence Estates Agency
(hereinafter the ‘NDEA’) is unable to produce reliable evidence
documenting that Lista air base was sold at market value (5).

On 14 September 2005, the Authority sent a letter to the
Norwegian authorities requesting information regarding the sale
of Lista air base located in the municipality of Farsund in
Southern Norway (Event No 332322).

By letter dated 28 October 2005 from the Norwegian Mission
to the European Union,
forwarding two letters, respectively
dated 26 October 2005 from the Ministry of Modernisation and
24 October 2005 from the Ministry of Defence, the Norwegian
authorities replied to the questions raised by the Authority. This
letter was
received and registered by the Authority on
29 October 2005 (Event No 348525).

By letter dated 28 March 2007 (Event No 414743),
the
Authority requested that the Norwegian authorities communi-
cate additional information.

By letter dated 4 May 2007 (Event No 420179), received and
registered by the Authority on the same day, the Norwegian
authorities provided further information.

(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) Guidelines on the application and interpretation of Articles 61 and 62
of the EEA Agreement and Article 1 in Protocol 3 to the Surveillance
and Court Agreement, adopted and issued by the EFTA Surveillance
Authority on 19 January 1994, published in OJ L 231, 3.9.1994, p. 1,
EEA Supplements No 32, 3.9.1994. The Guidelines were last amended
on 3 May 2007. Hereinafter referred to as ‘the State Aid Guidelines’.
(5) Report No 3:7 (2004-2005), The Auditor General' s study of the sale of

Lista air base.

On 12 September 2002, the NDEA sold Lista air base to Lista
Flypark AS. The sale resulted in a net disbursement from the
Norwegian State to Lista Flypark AS of NOK 10 875 000.

2.1. The property sold

Lista air base covers 5 000 000 m2 of land. The conglomeration
of buildings consists of storage buildings, barracks, mess halls
and hangars representing in total approximately 28 000 m2.
The estate also includes an airstrip and a wetland area.

According to the municipal sector plan of Lista air base
approved by the Municipal Council of Farsund (6), the property
may be used for commercial activities
including aviation
services, public development, crafts and industry. The area
around Slevdalsvannet, which encompasses the wetland area
and an ammunition depot for the Norwegian Armed Forces,
has been reserved for the use of the Norwegian Armed Forces,
airport services and nature conservation. Around 1 900 000 m2
can be used for industrial purposes.

Finally, parts of the land and some buildings are protected in
accordance with National Protection Plan from the Norwegian
Armed Forces, including:

— three hangars and the air defence simulator (7),

— a mess hall, and

— parts of the land, including runways, taxiways and some of

the road network.

2.2. The LILAS agreement

In Proposition No 50 (1994-1995)
the
Ministry of Defence presented its proposal on the closing of
Lista air base. The Ministry of Defence proposed the so-called
‘development alternative’ providing that the military air base
activities on Lista air base should cease as from 1 July 1996.

to the Parliament,

According to such alternative, the Norwegian Armed Forces
would evaluate the conglomeration of buildings to decide on
the buildings which could not or should not be used for indus-
trial and commercial purposes.

(6) Decision No 73/01 and 05/00 of 18 December 2001 by the Municipal

Council of Farsund.

(7) See Regulation 2004-05-06 No 718 based the Norwegian Heritage Act

from 1978.

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The remaining buildings, which could be used for
such
purposes, should be maintained in condition for a period of
maximum ten years in order to review the possibilities of indus-
trial and commercial development and arrange for best possible
commercial use of Lista air base. In its recommendation to the
Parliament,
the
Parliamentary Committee
the
proposal from the Government.

supported

On 12 June 1995, the Parliament made a resolution in accord-
ance with
Parliamentary
Committee.

recommendations

the

the

of

On 27 June 1996, the NDEA entered into a ten year lease agree-
ment with Lista Airport Development AS (‘LAD’) to enter into
effect on 1 July 1996 until 30 June 2006 with the possibility
for LAD to rent the air base for another ten year period. The
company was owned by the Municipality of Farsund (20 %) and
local investors (80 %).

The agreement covered a conglomeration of buildings which in
total adds up to 12 500 m2 and approximately 60 % of the
estate.

The main objective of the agreement was to develop, as part of
the implementation of the ‘development alternative’ within a
period of maximum ten years, commercial air services on the
air base.

The lease agreement was later transferred to Lista Lufthavn AS
(‘LILAS’) which, as such, was established on 3 May 1996.

According to Articles 3(1) and 3(2) of the lease agreement,
LILAS would rent a specified part of the buildings and the
airstrip at an annual price of NOK 10 000.

Article 7(5) of the lease agreement further provides that the
owner of the air base is responsible for external maintenance of
buildings and maintenance of the airstrip. The liability is limited
to NOK 1 500 000 annually. As consideration for this obliga-
tion, the owner is entitled to a split of the profit as provided by
Article 3 of the lease agreement (1).

In case LILAS does not use its right to prolong the lease at the
it may buy, according to
end of the initial ten year period,
Article 13(1) of the lease agreement, a specified area of the air
base at a price of NOK 10 000 000.

According to Article 13(6) of the lease agreement, LILAS may
buy, in a situation where the NDEA decides to sell Lista air base
en bloc during the lease period, the entire air base at a price of
NOK 25 000 000. By letter dated 13 December 2002, LILAS
waived its pre-emptive right to buy Lista air base en bloc.

In June 2006,
in conformity with Article 13(1) of the lease
agreement, LILAS exercised its pre-emptive right to purchase
parts of the Lista air base for an amount of NOK 10 000 000
from Lista Flypark AS. Section 3 of the 2002 sales agreement
between the NDEA and Lista Flypark AS, provided that in case
of sale by the buyer of part of the property within five years,
the formal approval of the NDEA had to be granted and 50 %

(1) Article 3 of the lease agreement provided that in case the profit gener-
ated as a result of the commercial use of the air base exceeded
NOK 4 500 000, the owner of the air base would be entitled to a share
of the profit equal to 20 % of the share of the profit exceeding
NOK 4 500 000.

of the proceeds of the sale had to be paid to the NDEA. Conse-
quently, when Lista Flypark sold parts of the air base to LILAS,
NDEA in turn exercised its right to be paid by Lista Flypark AS
an amount corresponding to 50 % of the net income of the
sale.

LILAS' plan for civil use of the air base was to operate domestic
scheduled flights and international air freight with export of fish
to Europe, the United States and the Far East. The commercial
services stopped as of 1 November 1999. LILAS received
however some income from the sub leases of certain parts of
the air base.

2.3. The sales process

During 2000, to attract potential buyers, the NDEA had put
several advertisements in Norwegian newspapers in which the
possible uses of parts of Lista air base were listed. According to
the Norwegian authorities, the advertisements were published in
Farsund Avis, which is a local newspaper, Fedrelandsvennen and
Stavanger Aftenblad, both of which are regional newspapers.

According to the Norwegian authorities, an en bloc sale of Lista
air base was not advertised at this stage.

investors were

On 16-17 August 2001, the NDEA hosted the ‘Lista conference’
invited.
to which 7 000-8 000 potential
180 participants attended the conference. The objective of the
conference was to present Lista air base to potential buyers. On
the agenda was the transformation of the air base from military
to civilian commercial use. Further
the
Norwegian authorities engaged Mr Christer Hjort, a Swedish
consultant, to assist them with the sale process. The Norwegian
authorities have indicated that Mr Christer Hjort had concluded
that the possibilities of considering Lista air base as an invest-
ment object were limited due to the ten year lease agreement in
which LILAS had been granted a privileged position.

to the conference,

In August 2001, the NDEA decided that the air base should be
sold en bloc. Several
to
assess the condition of the air base, including a report regarding
fire-technical status, possible need to decontaminate the land
and the necessity to improve the land drainage system.

reports were requested in order

The Norwegian authorities only provided the NDEA with a
fire safety report dated 24 January 2002 in which a consultancy,
the necessary fire safety upgrades
TekØk, estimated that
required to meet
amounted to
applicable
the
NOK 14 596 800.

standard,

In the beginning of 2002, sales negotiations were initiated with
the real estate developers Intervest Eiendom AS and Interconsult
Prosjektutvikling AS, following an initiative from the Munici-
pality of Farsund.

As part of the negotiations with the two companies mentioned
here above, the NDEA ordered two value assessments by the
real estate value assessors Verditakst and OPAK (2).

(2) The conclusions of which are mentioned below in section 2.5.

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For the years 2002-2004, the Parliament gave the Ministry of
Defence, according to Section 2.1(1) of the Regulation on Alie-
nation (hereinafter the ‘Regulation’), the authority to alienate
redundant property, buildings and installations used by the
Armed Forces at market value. On behalf of the Ministry of
Defence, the alienations were to be carried out by the NDEA.

According to Section 3.1 of the Regulation, alienation had to be
conducted in such a way that
the State received the best
economic result possible. Alienation had to be done either by
the NDEA itself or through a real estate agent. It followed from
Section 3.4 of the Regulation that alienation by the NDEA itself
should, in principle, be conducted by way of a public announce-
ment. The announcement should be made public in the Official
Norwegian Gazette and at
least one local newspaper. As a
general principle,
the bidding procedure should be open;
however a closed bidding procedure could be used if the NDEA
considered it appropriate. Finally, it followed from the last para-
graph of Section 3.4 of the Regulation that if the property had
insignificant value or if there was only one or a limited number
of potential buyers, the NDEA could alienate in the form of a
direct sale. This would imply a sale based on bids from either
one or a limited number of invited buyers. The sale price could
not in any event be agreed below the market value established
in the value assessment.

2.4. The terms and conditions of the sale

On 12 September 2002, the NDEA sold Lista air base to Lista
Flypark AS. The sales price was agreed on the basis of the valua-
in which the market value of
tion carried out by Verditakst,
Lista air base was estimated at NOK 11 000 000.

At the time of the sale, there was no air service activity on Lista
air base; however, the air base was still being used for some
military activities (inter alia shooting range, ammunition depot
and a mobilisation depot among others).

An amount of NOK 7 500 000 was deducted from the value of
the property to take into account the works that needed to be
carried out in order to comply with applicable fire safety stan-
dards. The sales price of the property was therefore brought
down to NOK 3 500 000.

In addition to the above, the Norwegian authorities contrac-
tually agreed to compensate the buyer for the following costs:

— NOK 3 500 000 corresponding to the need to carry out
works relating to technical installations (1) (such as electrical
transmission lines),

total

compensation

amounting
to
The
NOK 14 375 000 was
the sale price of
NOK 3 500 000. The Norwegian authorities thus paid the
purchaser NOK 10 875 000.

agreed
set off against

and

Transfer of the property took place on 9 December 2002.

2.5. The valuation reports of Lista air base

Two independent valuation reports of the property were carried
out.

2.5.1. The Verditaks t valuation repor t

The valuation report dated 7 June 2002 estimated that the en
bloc market value of Lista air base was NOK 11 000 000. The
Verditakst report was based on an inspection of the property
carried out on 23 May 2002.

The estimation of the market value was based on the following
set of assumptions:

— the NDEA was positive to a sale of Lista air base,

— Lista air base could publicly be advertised for sale during a

normal period,

— potential buyers who were willing to bid unreasonably high
due to special interests in the property could be disregarded,

— the information provided by the NDEA was accurate,

— Verditakst had not surveyed the conglomeration of build-
ings, checked foundations, or controlled the presence of
asbestos in the buildings,

— Verditakst had not been provided with a certificate of prac-
tical completion, or controlled whether there were public
orders, including fire safety orders or whether the use of the
property at the time was permitted,

— Verditakst had not

controlled registered servitudes or

possible transmission lines in the ground, and

— Lista air base was fully insured.

The market value of NOK 11 000 000 corresponds to:

— NOK 5 500 000 corresponding to works to be carried out

for the development of new infrastructure (2), and

— capitalised

value
NOK 6 500 000,

of

net

income

from the

lease:

— NOK 5 375 000 corresponding to compensation for the
lease agreement entered into with LILAS (3). The amount of
this compensation is based on the fact that the NDEA was,
at the time of the sale in 2002, under an obligation to pay
LILAS a yearly amount of NOK 1 500 000 for costs related
the buildings for approximately
to the maintenance of
another four years.

— value of the land: NOK 4 500 000.

According to the Verditakst report, the technical installations in
the buildings were partly outdated. No technical inspection was
carried out. The condition of the buildings as regards mainte-
nance has not been inspected, only roughly estimated. Verditakst
evaluated that the total building area was of 25 000 m2.

(1) Article 20 of the Sales agreement and section 2 in the Annex to the

registered deed.

(2) Article 19 of the Sales agreement and section 2 in the Annex to the

registered deed.

(3) Article 9 of the Sales agreement and section 2 in the Annex to the regis-

tered deed.

By letter dated 4 May 2005, the Norwegian authorities asked
information. Thus, the
Verditakst to provide some additional
valuator was asked whether it had taken into account the defi-
ciency of the technical condition revealed by the TekØk report
regarding fire safety and the liability related to the ten year lease.

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By letter dated 6 May 2005, Verditakst confirmed that it had
not taken into account those two elements when assessing the
value of the property.

2.5.2. The OPAK valuation repor t

According to a simplified valuation report dated 29 May 2002,
OPAK estimated the en bloc market value of Lista air base by
using three alternatives. Alternative 1 resulted in an estimated
market value of NOK 32 000 000 and alternative 2 in an esti-
mated market value of NOK 34 000 000. The third alternative
value estimated the market value at NOK 25 000 000.

Indeed, OPAK considered that there were three alternative ways
to assess the value of the property:

— alternative 1:

sale of

the property to new purchaser:

NOK 32 000 000,

— alternative 2: sale of the property to LILAS on the basis of
its pre-emptive right to buy part of the leased building and
land at the end of the ten year lease: NOK 34 000 000, and

— alternative 3: sale of the property to LILAS on the basis of
its pre-emptive right to buy the property en bloc during the
lease period: NOK 25 000 000.

The OPAK report was based on an inspection of the property
carried out on 21 May 2002.

The estimated market value was based on the following assump-
tions:

— the NDEA was positive to a sale of Lista air base,

— Lista air base could publicly be advertised for sale during a

normal period,

— potential buyers who were willing to bid unreasonably high
due to special interests in the property could be disregarded,

— the information provided by the NDEA was accurate,

— OPAK had not obtained financial information or status of

tenants present at the time,

— OPAK had not surveyed the conglomeration of buildings,
controlled the presence of

controlled foundations, or
asbestos in the buildings,

— OPAK had not been provided with a certificate of practical
completion, or controlled whether there were public orders,
including fire safety orders or whether the use of the prop-
erty at the time was permitted,

— OPAK had not controlled registered servitudes or possible

transmission lines in the ground, and

— all costs in relation to possible contamination of the ground

was held to be the responsibility of the NDEA.

The conditions of the sale actually corresponded to the alterna-
tive 1 as the air base was sold to a new purchaser.

The market value arrived at for alternative 1 and rounded up to
NOK 32 000 000 corresponds to:

— capitalised

value
NOK 26 500 000,

of

net

income

from the

lease:

— value of the land: NOK 10 000 000,

— compensation for LILAS agreement deducted from the

value: NOK 5 000 000.

According to the OPAK report, the condition of the buildings as
regards maintenance had not been inspected, only roughly esti-
take note of any
mated. During inspection, OPAK did not
ground pollution. OPAK was aware of the existing lease agree-
ments including the LILAS agreement. OPAK estimated the total
building area at 28 467 m2.

3. Comments by the Norwegian authorities

The Norwegian authorities have argued that the possibility for
the air base to be seen as an attractive investment for potential
investors was very limited, particularly in the light of
the
existing lease agreement entered into with LILAS and the possi-
bility for the latter to purchase the property at the end of a ten
year period. Indeed, very few would-be buyers would be willing
to invest in the air base and develop it as the tenant of the prop-
erty was given the right to purchase part/all of it after just a few
years.

The Norwegian authorities consider that ‘the market value of the
air base is by definition not more than possible buyers are willing to
pay. (…) NDEA made its best efforts to achieve the highest possible
price in the existing markets’.

The Norwegian authorities have argued that the reason for their
choosing the Verditakst report instead of the OPAK report was
because ‘the value assessment made by OPAK AS dated 29 May
2002 was a temporary and simplified value assessment primarily
carried out for budgetary purposes. Basically, the assessment was a
suggestion of the highest possible payment investors might be willing
to pay for the air base, provided that all favourable preconditions were
fully met’.

The Norwegian authorities have furthermore indicated that the
value of NOK 25 000 000 which was set in the case LILAS
decided to buy the entire property en bloc during the lease, was
the result of negotiations. According to the Norwegian authori-
ties, such a high amount was arrived at because ‘in 1996, the
parties were optimistic about the potential outcome of their mutual
efforts in developing the property and thereby create additional value to
the property’.

The Norwegian authorities have furthermore indicated that their
aim in selling Lista air base was to save the government future
costs.
Indeed, over the period 1996-2002, the NDEA spent
NOK 41 500 000 on the management, maintenance and
upgrades of the air base. The works included drainage, installa-
tion of runway lightening and public relations spending. The
cost
alternative’ was of
NOK 50 000 000 whereas maintaining the air base would have
The
had
Norwegian authorities consider that
this element should be
taken into account when evaluating whether the NDEA should
have sold the property at the agreed price.

of NOK 50 000 000-258 000 000.

‘development

from the

arising

cost

a

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II. APPRECIATION

1. The presence of State aid

1.1. State aid within the meaning of Article 61(1) EEA Agreement

Article 61(1) of the EEA Agreement reads as follows:

‘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 produc-
tion of certain goods shall, in so far as it affects trade between
Contracting Parties, between Contracting Parties, be incompa-
tible with the functioning of this Agreement’.

Aid falling within this provision is, as a rule, incompatible with
the EEA Agreement and hence prohibited, provided that the
following four conditions are fulfilled:

1. the aid is granted by ‘EC Member States, EFTA States or

through state resources in any form whatsoever’;

2. the aid ‘distorts or threatens to distort competition’;

3. the aid favours ‘certain undertakings or the production of certain

goods’; and

4. the aid ‘affects trade between the Contracting Parties’.

The measure under review could take two distinct forms which
could amount to State aid: firstly, the sale of the air base at a
price below market value (see Section 2.3 below) and secondly,
the leasing out of the air base at a price below market value (see
Section 2.4 below).

1.2. State aid within the meaning of the State Aid Guidelines —
Chapter on State aid elements in sales of land and buildings by
public authorities

The State Aid Guidelines, Chapter on State aid elements in sales
of land and buildings by public authorities, gives further infor-
mation on how the Authority interprets and applies the provi-
sions of the EEA Agreement governing State aid when it comes
to assessing sales of public land and buildings. Section 2.1
describes a sale through an unconditional bidding procedure,
while Section 2.2 describes a sale without an unconditional
bidding procedure (by way of an independent expert evaluation).
These two procedures allow EFTA States to handle sales of land
and buildings in a way that precludes the existence of State aid.

The State Aid Guidelines, Chapter on State aid elements in sales
of land and buildings by public authorities provides expressly
that ‘the guidance concerns only sales of publicly owned land and
buildings. It does not concern the public acquisition of land and build-
ings or the letting or leasing of land and buildings by public authori-
ties. Such transactions may also include State aid elements’. (emphasis
added)

1.3. The sale of Lista air base

1.3.1. Presence of State resources

Condition 1 above is directed at all aid financed from public
resources. It is thus clear that aid from the NDEA falls within
the scope of State resources.

Sale of publicly owned land and buildings below market value
implies that State resources are involved. However, the Chapter
on State aid elements in sales of land and buildings provides for
two cases where, if the applicable conditions are met, the price
paid for the property will be held to correspond to fair market
value therefore excluding the presence of State resources.

Two situations should be distinguished: cases where the sale has
taken place through an unconditional bidding procedure (see
(i) below) and those where the sale has been carried out with
reference to value assessments carried out by independent
experts (see (ii) below).

(i) Sale through an unconditional bidding procedure

The Norwegian authorities recognise that ‘the process started out
as an unconditional bidding procedure regarding the sale of parts of
the air base. Advertisements listing possible uses of the air base were
published
Farsund Avis,
Fedrelandsvennen and Stavanger Aftenblad in 2000’.

newspapers

different

such

as

in

Neither the advertisements nor the so-called ‘Lista conference’
led to any sale. The process did not cover the case of a sale of
the air base en bloc. The Authority therefore considers that there
was no unconditional bidding procedure in connection with the
sale of the air base en bloc and that the possibility to preclude
the existence of State aid on the basis of the relevant Chapter of
the State Aid Guidelines is therefore excluded.

(ii) Sale without an unconditional bidding procedure

Section 2.2 of the State Aid Guidelines — Chapter on State Aid
elements in sales of land and buildings by public authorities,
regarding sale without an unconditional bidding procedure
provides that ‘if public authorities intend not to use the procedure
described under Section 2.1, an independent evaluation should be
carried out by one or more independent asset valuers prior to the sale
negotiations in order to publish the market value on the basis of gener-
ally accepted market indicators and valuation standards. The market
price thus established,
is the minimum purchase price that can be
agreed without granting State aid’. (emphasis added)

The Norwegian authorities have indicated that ‘in the beginning
of 2002, sales negotiations were initiated with the real estate develo-
pers Intervest Eiendom AS and Interconsult Prosjektutvikling AS,
following an initiative from the Municipality of Farsund. As part of
the negotiation with the above mentioned companies, NDEA ordered
two new value assessments, by the real estate value assessor firms
Verditakst AS and OPAK. A sales agreement was
reached on
12 September 2002 between NDEA and Lista Flypark AS’.

This is confirmed by the Report from the Auditor General
which concluded that neither a valuation of the entire property
nor a public announcement of the intended sale was made prior
to the start of the negotiations with Lista Flypark AS in March
2002.

As the conditions set by the State Aid Guidelines — Chapter on
land and buildings by public
State Aid elements in sales of
the Authority
authorities appear not
cannot exclude that the sale may have involved some elements
of State aid.
Indeed, some uncertainties exist regarding the
purchase price of the air base.

to have been fulfilled,

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(iii) Uncertainties regarding the purchase price

Based on the information submitted, the Authority has serious
doubts as to whether the value of the property used as a basis
for determining the price finally paid by the purchaser reflected
market value.

the purchaser was determined by
The price paid by
reference to the valuation report which was carried out by
Verditakst,
i.e. NOK 11 000 000. The Authority has doubts
whether this amount represented the market value of the prop-
erty as OPAK concluded that the value was of NOK 32 000 000
and as the sales price stated in the lease agreement was of
NOK 25 000 000 for the whole airport.

the Authority cannot

Indeed, in the light of the nearly identical set of assumptions
used by both Verditakst and OPAK to assess the value of the
property,
significant
difference between the value reached by both independent
evaluators
to
NOK 32 000 000 for OPAK) can be explained. This difference
is even more difficult to explain in view of the fact that OPAK
took into account, in its value assessment, the liability related to
the existence of the LILAS lease agreement.

from NOK 11 000 000 for Verditakst

see how the

(i.e.

The Authority has not been presented with convincing evidence
that the high value reached by OPAK can be explained, as
argued by the Norwegian authorities, by the fact that such value
assessment was
‘a temporary and simplified value assessment
primarily carried out for budgetary purposes. (…) the assessment was
a suggestion of the highest possible payment investors might be willing
to pay for the air base, provided that all favourable preconditions were
fully met’.

The doubts are furthermore confirmed by the Study of the
Auditor General which concludes that there is no documenta-
tion available indicating that the valuation of NOK 11 000 000
was used as a basis for calculating the sales figure. Furthermore,
the Auditor General
the opinion that documentation
proving that the purchase price reflected the market value had
not been produced.

is of

Furthermore, Section 2.2.c of the Chapter on State aid elements
in sales of land and buildings by public authorities states that:
‘special obligations that relate to the land and buildings and not to the
purchaser or his economic activities may be attached to the sale in the
public interest provided that every potential buyer is required, and in
principle is able, to fulfil them, irrespective of whether or not he runs a
business or of the nature of his business. The economic disadvantage of
such obligations should be evaluated separately by independent valuers
and may be set off against the purchase price (…)’. (emphasis added)

Norwegian State paid Lista Flypark AS NOK 10 875 000 to
obtain the air base and the related buildings.

The Authority has doubts whether these payments can be said
to compensate for special obligations that relate to the land and
the buildings in the meaning of the above quoted Section 2.2.c
of the relevant Chapter of the mentioned Guidelines.

1.3.2.

Favour ing cer tain under takings or the produc-
tion of cer tain goods

Referring to the third condition mentioned above, it is to be
noted: first, the aid measure must confer on Lista Flypark AS
advantages that relieve it of charges that are normally borne
from its budget. The Authority considers that if Lista Flypark AS
was able to buy the property for less than its fair market value,
the difference between the price actually paid and the fair
market value would constitute an advantage.

Second, the aid measure must be selective in that it favours
‘certain undertakings or the production of certain goods’. In the case
at hand, the beneficiary would be Lista Flypark AS.

The Authority considers that this condition is fulfilled.

1.3.3. Distor tion of competition and effect on trade

between Contracting Par ties

According to conditions two and four, the aid measure must
distort competition and affect trade between the Contracting
Parties. Under settled case law for the purpose of these provi-
sions, the mere fact that an aid strengthens a firm's position
compared with that of other firms, which are competitors in
intra-EEA trade, is enough to allow the conclusion to be drawn
that intra-EEA trade is affected.

The Authority considers that the real estate market in Southern
Norway is not limited to local undertakings. Lista Flypark AS is
in competition with similar undertakings in Norway and other
EEA States. A sales price below market value favouring Lista
Flypark AS would distort or threaten to distort competition and
affect
the
trade between Contracting Parties. Consequently,
Authority considers that conditions two and four above, are
fulfilled.

1.4. The leasing out of part of Lista air base

1.4.1. Presence of State resources

In the case at hand, the purchaser was compensated for the
following:

— compensation

related

to

technical

installations:

NOK 3 500 000,

— compensation related to the development of new infrastruc-

ture: NOK 5 500 000, and

— compensation related to LILAS agreement: NOK 5 375 000.

The Authority notes that these compensatory payments together
with the applied value assessment implied in reality that the

Should the air base have been rented out at a price below
market value,
the condition regarding involvement of State
resources would be met for the same reasons as those set out
above regarding the sale of the air base.

Indeed,

On the basis of the information it has been provided with at
this stage, the Authority has doubts that the value of the rent
paid under the LILAS agreement corresponded to fair market
value.
themselves have
the Norwegian authorities
admitted that the rent was below market value. In such a case,
the difference between the amount actually paid by the tenant
and the market value of the property would result in State
resources having been involved.

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Official Journal of the European Union

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1.4.2.

Favour ing cer tain under takings or the produc-
tion of cer tain goods

The Norwegian authorities have indicated in their letter dated
24 October 2005 that ‘LILAS' rent is also extremely low and below
market price (NOK 10 000 a year)’. (emphasis added)

value, which could result in some elements of State aid being
involved prior to the signing of the sales agreement. If such
were the case, the rent at lower than market value was not noti-
fied to the Authority. This would also constitute a breach of the
Norwegian authorities' obligations pursuant to Article 1(3) in
Part I of Protocol 3 to the Surveillance and Court Agreement.

LILAS may thus have been benefiting from a favourable treat-
ment in the form of a reduced rent.

3. Compatibility of the aid

1.4.3. Distor tion of competition and effect on trade

between Contracting Par ties

the mere fact

these provisions,

The aid measure must distort competition and affect
trade
between the Contracting Parties. Under settled case law for the
purpose of
that an aid
strengthens a firm's position compared with that of other firms,
which are competitors in intra-EEA trade, is enough to allow the
conclusion to be drawn that intra-EEA trade is affected. The
activity LAD and then LILAS were intending to carry out at the
time of the signing and then of the transfer of the lease agree-
ment was the operation of domestic scheduled flights and inter-
national air freight with export of fish to Europe, the United
States and the Far East. The fact that both companies may have
benefited from favourable conditions may then have distorted
competition and had an effect on trade within the EEA.

By allowing LILAS to benefit from a reduced rent to carry out
its economic activities,
the NDEA may thus have distorted
competition and affected trade within the EEA.

1.5. Conclusion

The Authority, after having reviewed all the data in its posses-
sion, considers that it cannot be excluded that both the sale of
the Lista air base and the leasing out of part of the air base
could both constitute aid measures.

2. Procedural requirements

Pursuant to Article 1(3) in Part I of Protocol 3 to the Surveil-
lance and Court Agreement, ‘the EFTA Surveillance Authority shall
be informed, in sufficient time to enable it to submit its comments, of
any plans to grant or alter aid. […]. The State concerned shall not
put its proposed measures into effect until the procedure has resulted in
a final decision’.

The State Aid Guidelines, Chapter on State Aid elements in sales
of land and buildings by public authorities, states inter alia that
the EFTA States should notify any sale of land and buildings by
public authorities that was not concluded on the basis of an
open and unconditional bidding procedure and any sale that
was, in the absence of such procedure, conducted at less than
market value.

The Norwegian authorities did not notify the sale of Lista air
base to the Authority. If the doubts of the Authority as to the
sale below market price were confirmed, this would constitute
State aid within the meaning of Article 61(1) of the EEA Agree-
ment. In that case the Norwegian authorities would not have
respected their obligations pursuant to Article 1(3) in Part I of
Protocol 3 to the Surveillance and Court Agreement.

Furthermore, the Norwegian authorities have also indicated that
the rent paid under the LILAS agreement was below market

The Authority has assessed the two potential aid measures
under Article 61(3) of the EEA Agreement. With regard to the
sale of the air base, the Authority has also assessed the measure
in combination with the State Aid Guidelines, Chapter on State
aid elements in sales of land and buildings by public authorities.

3.1. Sale of the air base

The Norwegian authorities have argued that the sale does not
contain aid. However, after assessing the likely involvement of
State aid in the sale of the air base,
it has to be considered
whether such aid could be compatible with the EEA Agreement
by virtue of Article 61(3) of the EEA Agreement.

On the basis of the information the Authority has received,
Article 61(3)(a)-(c) of the EEA Agreement appears to be inap-
plicable. In the view of the Authority, the sale is not designed to
promote the economic development of areas where the standard
of living is abnormally low or where there is serious underem-
ployment, to promote a project of common European interest
or to facilitate the development of certain economic activities or
of certain economic areas.

3.2. Leasing out of the air base

Regarding the leasing out of the air base at a price which may
be below market value, for the same reasons as those set out
under 3.1 here above, it is not clear either on what grounds
such a measure could be held to amount to compatible aid.

4. Conclusion

Based on the information submitted by the Norwegian authori-
ties,
the
the Authority cannot exclude the possibility that
measure(s) under scrutiny constitute aid within the meaning of
Article 61(1) of the EEA Agreement. Furthermore, the Authority
has doubts that these measures can be regarded as complying
with Article 61(3) of the EEA Agreement. The Authority thus
doubts that the above measures are compatible with the func-
tioning of the EEA Agreement.

Consequently, and in accordance with Article 10 in Part II of
the
Protocol 3 to the Surveillance and Court Agreement,
Authority is obliged to open the procedure provided for in
Article 1(2) in Part I of Protocol 3 of the Surveillance and Court
Agreement. The decision to open proceedings is without preju-
dice to the final decision of the Authority, which may conclude
that the measures in question are compatible with the func-
tioning of the EEA Agreement.

In light of the foregoing considerations, the Authority, acting
in Part I of
under the procedure laid down in Article 1(2)
Protocol 3 to the Surveillance and Court Agreement, requests
the Norwegian authorities to submit their comments within one
month of the date of receipt of this Decision.

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Official Journal of the European Union

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In light of the foregoing consideration, the Authority requires
that, within one month of receipt of this decision, the Norwe-
gian authorities provide all documents,
information and data
needed for assessment of the compatibility of both the sale of
the air base and the renting out of the air base to LILAS. It
requests the Norwegian authorities to forward a copy of this
letter to the potential recipient of the aid immediately.

The Authority would like to remind the Norwegian authorities
that, according to the provisions of Protocol 3 to the Surveil-
lance and Court Agreement, any incompatible aid unlawfully
put at the disposal of the beneficiaries will have to be recovered,
unless this recovery would be contrary to a general principle of
EEA law,

HAS ADOPTED THIS DECISION:

Article 1

The EFTA Surveillance Authority has decided to open the
formal investigation procedure provided for in Article 1(2) in
Part I of Protocol 3 to the Surveillance and Court Agreement
against Norway regarding the sale of Lista air base and the lease
agreement between the Norwegian Defence Estates Agency and
LILAS.

mation and data needed for the assessment of the compatibility
of the aid measure.

Article 4

The EC Commission shall be informed,
in accordance with
Protocol 27(d) of the EEA Agreement, by means of a copy of
this Decision.

Article 5

Other EFTA States, EC Member States, and interested parties
shall be informed by publishing this Decision in its authentic
language version, accompanied by a meaningful summary in
languages other than the authentic language version, 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.

Article 6

This Decision is addressed to the Kingdom of Norway.

Article 2

Article 7

Only the English version is authentic.

are

authorities

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

requested,

pursuant

Done at Brussels, 6 June 2007.

Article 3

The Norwegian authorities are required to provide within one
month from notification of this Decision, all documents, infor-

For the EFTA Surveillance Authority,

Kurt JAEGER

Acting President

Kristján Andri STEFÁNSSON

College Member