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 regional aid scheme for transport of round wood in Norway
Date: 2009-02-12
Institutions: EFTA Surveillance Authority
Subjects: Court of Justice of the European Union, EFTA, Norway, State aid, carriage of goods, control of State aid, exchange of information, fuel wood

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Official Journal of the European Union

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NOTICES CONCERNING THE EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

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 regional aid scheme for transport of round wood in Norway

(2009/C 35/07)

By means of Decision No 358/08/COL dated 11 June 2008, 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 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.

Procedure

SUMMARY

Pursuant to Article 1(3) of Part I of Protocol 3 to the Surveillance and Court Agreement, the Norwegian
authorities notified their intention to grant aid in the form of regional grants for transport of round wood
by letter of 31 October 2007 from the Ministry of Government Administration and Reform, received and
registered by the Authority on the same date (Event No 449962).

The Authority requested additional information and statistical figures from the Norwegian authorities with
letters dated 11 December 2007 (Event No 454397) and 14 March 2008 (Event No 469427).
The Norwegian authorities replied on 1 February 2008 (Event No 463112) and 15 April (Event No 473559)
respectively.

Assessment of the measure

According to the notification, the aim of the regional aid scheme for the transport of round wood is to
promote development in regions situated far away from central areas by increasing forestry activity. The
notified scheme should stimulate the sale of timber in northern Norway and thus strengthen the wood
industry and contribute to the development of sustainable industry in this area. The scheme only applies to
wood processing industries located in the low population density areas of Nordland, Troms and Finnmark.

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According to the second indent of paragraph 70 of the Regional Aid Guidelines, aid should not be granted
towards transport of the products of businesses without an alternative location. Such products have to be
produced where they originate and location is therefore given. Round wood can be considered as a product
without an alternative location. In the EEA, aid towards transport of raw materials or intermediate products
can normally only be granted in the outermost regions of the EU. For this reason, the Authority has doubts
whether aid can be granted for the transport of round wood in accordance with the provisions of the
Regional Aid Guidelines.

Nevertheless, it can be considered whether transport aid for these products can be granted in the least popu-
lated regions in accordance with paragraph 69 of the Regional Aid Guidelines.

Even if such aid could also be granted in least populated regions, the Authority questions whether the exis-
tence of additional transport costs can be sufficiently justifiable for distances as short as 50 km.

Regional aid should, as a general rule, be granted under a multisectoral aid scheme. Thus, thee Authority
further doubts whether the granting of aid in the framework a sectoral scheme such as the present is in line
with the objective behind the regional aid guidelines.

Finally, the Authority raises the issue of whether the quantification of the aid amount on the basis of a
differentiated scale of distances instead of on the basis of an aid-per-ton/kilometre ratio is justifiable.

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 Agreement between the EFTA States on
the Establishment of a Surveillance Authority and a Court of Justice. Interested 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 358/08/COL

of 11 June 2008

on Regional Aid for Transport of Round Wood

(Norway)

THE EFTA SURVEILLANCE AUTHORITY,

2. Description of the proposed measures

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

2.1. Background

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

Having regard to Article 1(2) of Part I and Articles 4(4) and 6
of Part
II of Protocol 3 to the Surveillance and Court
Agreement,

Having regard to the Authority's State Aid Guidelines on the
application and interpretation of Articles 61 and 62 of the EEA
Agreement (1), and in particular
the Chapter on National
Regional Aid 2007-2013,

Having regard to the Authority's Decision No 226/06/COL of
19 July 2006 on the map of assisted areas and levels of aid
(Norway),

Having regard to the Authority's Decision No 195/04/COL of
14 July 2004 on the implementing provisions referred to under
Article 27 in Part II of Protocol 3 to the Surveillance and Court
Agreement (2),

Whereas:

I. FACTS

1. Procedure

Pursuant to Article 1(3) of Part I of Protocol 3 to the Surveil-
lance and Court Agreement, the Norwegian authorities notified
their intention to grant aid in the form of regional grants for
the transportation of round wood by letter of 31 October 2007
from the Ministry of Government Administration and Reform,
received and registered by the Authority on the same date
(Event No 449962).

information and statistical
The Authority requested additional
figures
from the Norwegian authorities with letters dated
11December 2007 (Event No 454397) and 14 March 2008
(Event No 469427). The Norwegian authorities replied on
1 February 2008 (Event No 463112) and 15 April 2008 (Event
No 473559) respectively.

(1) Guidelines on the application and interpretation of Articles 61
and 62 of the EEA Agreement and Article 1 in Part I of 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 and EEA Supplement No 32/1994. The Guide-
lines were last amended on 19 December 2007. Hereinafter referred
to as the State Aid Guidelines. They are accessible on:
http://www.eftasurv.int/fieldsofwork/fieldstateaid/guidelines/

(2) Published in the OJ L 139, 25.5.2006, p. 37. EEA Supplement No 26,
25.5.2006, page 1. Amended by Authority Decision No 319/05/COL
of 14 December 2005, published in the OJ C 286, 23.11.2006, p. 9,
EEA Supplement No 57, 23.11.2006, page 31.

The Norwegian authorities notified an aid scheme for the trans-
portation of round wood as existing aid in 1993. This scheme
expired in 2006. Following the adoption of new guidelines for
regional aid by the Authority applicable as of 1 January 2007,
the Norwegian authorities have re-notified an aid scheme for
the transportation of round wood in light of the new provisions
for State aid guidelines for national regional aid. The scheme is
called the regional grant for the transportation of round wood
(‘Transporttilskudd til skogbruket’).

2.2. Objective of the aid measure

the scheme is to
According to the notification, the aim of
the notified
in remote areas. Under
promote development
scheme, development
in these areas should be achieved by
increasing forestry activity. The scheme is designed to promote
forestry activity by stimulating interest to buy wood where there
is a need to develop economic activity. The notified scheme
should stimulate the sale of timber in northern Norway and
thus strengthen the wood industry and contribute to the devel-
opment of sustainable industry in this area.

The wood industry in the north of Norway is made up of rather
small units and few wood conversion enterprises. Forestry has
traditionally been an important industry in central Norway, and
the forestry infrastructure there is well developed. However, in
the coastal areas forestry is a fairly new and relatively small
industry, with the exception of North and South Trøndelag.
According to the information provided by the Norwegian
authorities, less than 5 % of Norwegian timber comes from the
areas that comprise the round wood transportation scheme.

The Norwegian authorities have also explained that large parts
of the coast have a less developed infrastructure than the more
central part of Norway. Moreover, the distances for transporta-
tion are often long. This leads to higher transportation costs
and consequently a more difficult trading situation. The costs of
transportation form a larger share of
the total costs than
elsewhere, in terms of both direct and indirect costs.

Low prices in timber and high transportation costs together
with the structure of the forestry industry contribute to the low
economic activity in the area covered by the scheme. Thus the
aim of the notified measure to reduce the disadvantages for the
forestry industry in the three northernmost counties caused by
the
long distances and high transportation costs. Therefore,
Norwegian authorities have explained that the scheme will thus
be phased out once the industry has reached an economically
viable.

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2.3. National legal basis for the aid measure

The national legal basis for the notified scheme is the annual
item 71 (1)) and
State budget (St. prp. Nr. 1, Chapter 1149,
annual letters of allocation from the Ministry of Agriculture and
Food to county governors or to the Norwegian Agricultural
Authority. In addition, the Ministry of Agriculture and Food will
adopt internal guidelines for the scheme (‘Regler for forvaltning av
transporttilskudd i skogbruket’).

2.4. Recipients

The scheme targets wood processing undertakings situated in
the north of Norway in the counties of Nordland, Troms and
Finnmark. According to the notification, the Norwegian authori-
ties estimate the number of beneficiaries to be less than
10 undertakings.

2.5. Eligible costs and overlap with other schemes

The notified scheme foresees the grant of operating aid aimed at
reducing a firm's existing expenses. Aid is granted on the basis
of a predefined set of eligible costs, which are additional trans-
portation costs.

According to the notification, the proposed aid level, allocated
in proportion to transportation distance, will only compensate
for the additional transportation costs incurred in the eligible
areas.
In order to avoid overcompensation, aid can only be
granted on supply of documented transportation costs. Appli-
cants must demonstrate the existence of particularly high trans-
portation costs and prove that there are no other possibilities
available. Applicants must account for the total costs of trans-
portation and show that the additional costs are due to long
distances.

The following conditions must be met in order to receive grants
from the scheme:

— aid may serve only to compensate for the additional costs of
transportation, taking into account that these are consider-
ably higher in northern Norway than in other parts of the
country. Applicants must provide an estimate of the total
costs of transportation and show that the additional costs
are due to long distances. All payments are made in arrears
and are based on applications outlining the actual transpor-
tation costs during the previous year,

— grants are restricted to transportation within national

borders,

— aid must be objectively quantifiable in advance of

the
granting of funds. The amount of aid is based on maximum
rates of NOK per km, as follows:

0-50 km:

50-149 km:

150-299 km:

300-450 km:

no subsidy

NOK 30 per m3

NOK 50 per m3

NOK 70 per m3

450 km and more:

NOK 100 per m3,

— aid must be based on the cheapest form of transport and
the shortest route between the place of production and the
place of processing. Applicants must provide an assessment
of this in their application, and county governors will be
able to control the assessment by means of local knowledge.

(1) http://www.regjeringen.no/nb/dep/lmd/dok/regpubl/stprp/2007-2008/

Stprp-nr-1-2007-2008-html?id=483947

The Norwegian authorities have explained that there are no
other schemes providing aid for the same costs. Nevertheless,
beneficiaries will be asked to report any additional aid that they
receive.

2.6. Budget and duration

The scheme for the regional grant for the transportation of
round wood is based on annual budgets. The planned annual
expenditure amounts
to NOK 3 million (EUR 375 000)
expressed in 2007 prices. The duration of the scheme is set to
be 6 years, until 31 December 2012. The estimated overall
amount of expenditure for the scheme corresponds thus to
approximately NOK 18 million (EUR 2 250 000) expressed
in 2007 prices.

The scheme will be administered by the County Governors of
Nordland, Troms and Finnmark.

II. ASSESSMENT

1. Procedural requirements

Pursuant to Article 1(3) of 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’.

By submitting notification of the scheme for the regional aid for
the transportation of round wood forwarded with a letter from
the Ministry of Government Administration and Reform,
received and registered by the Authority of 31 October 2007
(Event No 449962), the Norwegian authorities have complied
with the notification requirement. By not putting the scheme
into effect before getting the approval by the Authority, the
Norwegian authorities have
standstill
obligation.

complied with the

the Norwegian
The Authority can therefore conclude that
authorities have
to
Article 1(3) of Part I of Protocol 3 to the Surveillance and Court
Agreement.

respected their obligations pursuant

2. Presence of State aid

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 production of certain goods shall,
in so far as it affects trade between Contracting Parties, be incompatible
with the functioning of this Agreement.’

The notified aid scheme is funded by State resources in the form
of annual budgetary allocations from the State budget.

The scheme will confer an advantage in favour of certain under-
takings by relieving them of
they
would normally have to pay for from their own budgets. More-
over, the notified scheme is selective as only wood processing
enterprises in the selected counties of Nordland, Troms and
Finnmark can receive State support under the scheme.

transportation costs that

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The scheme has an actual or potential distorting effect on
competition and affects trade within the EEA because the aid
strengthens the position of the beneficiaries in relation to their
In this respect,
actual or potential competitors in the EEA.
taking into account inter alia that the relevant sector is exposed
to international competition, although the amount of round
wood and the total production of processed wood in the area
covered by the scheme is small in comparison with the national
totals, the scheme might have distorting effects on competition.

the Authority assumes that

As the scheme is notified,
the
Norwegian authorities have not made use of Regulation (EC)
No 1998/2006 on the application of Articles 87 and 88 of the
Treaty to de minimis aid (so-called de minimis regulation). In line
with this Regulation, grants
to any one undertaking not
exceeding EUR 200 000 over any given period of three fiscal
years do not constitute State aid within the meaning of
Article 61(1) of the EEA Agreement.

For the above mentioned reasons, the Authority considers that
the notified measure constitutes an aid scheme within the
meaning of Article 61(1) of the EEA Agreement read together
with Article 1(d) in Part II of Protocol 3.

3. Compatibility of the aid

3.1. Introduction

The Authority has assessed the compatibility of the notified
scheme for Regional aid for the transportation of round wood
with Article 61(3)(c) of the EEA Agreement in light of the State
Aid Guidelines on National Regional Aid (1).

Article 61(3)(c) of the EEA Agreement concerns aid to facilitate
the development of certain economic activities, where such aid
does not adversely affect
to an extent
contrary to the common interest of the Contracting Parties to
the EEA Agreement.

trading conditions

and that, having regard to the nature and size of the project, it
will not result in unacceptable distortions of competition.

The scheme on regional aid for the transportation of round
wood is exclusively designed for the round wood sector. The
Authority doubts whether the granting of aid in the framework
of such a sectoral scheme is in line with the objective behind
the regional aid guidelines. In various decisions of the Commis-
sion and the Authority,, aid schemes to stimulate industrial
activity in remote areas and areas of the north of countries like
Norway, Sweden or Finland by providing compensation for
additional transportation costs incurred by enterprises located in
these regions have been approved (2). Contrary to the scheme
for regional aid for the transportation of round wood, these
schemes covered a broad range of economic sectors. The
regional aid rules favour multisectoral aid schemes over sectoral
ones. Thus,
it is questionable whether the limited scheme in
question, designed solely for the forestry sector, can be said to
contribute to a coherent regional development strategy.

3.3. Geographical delimitation of the scheme

Chapter 5 of the State Aid Guidelines on Regional Aid concerns
the grant of operating aid, i.e. aid which is aimed at reducing a
firm's existing expenses. Operating aid is normally prohibited.
However, in accordance with paragraph 70, operating aid which
is not progressively reduced and limited in time may be granted
in low population density regions to offset additional transpor-
tation costs.

Low population density regions are defined in paragraph 22(a)
in Chapter 3 of the State Aid Guidelines on Regional Aid as the
NUTS III regions or parts of the NUTS III regions with a popu-
lation density of
less than 12,5 inhabitants per km2. The
regional aid map for Norway approved by the Authority in
July 2006 (3)
is made up of such low population density
regions.
follows that aid for transportation may only be
granted within the area covered by the regional aid map for
Norway.

It

Regional aid is designed to develop the disadvantaged regions
by supporting investment and job creation in a sustainable
context and, in exceptional cases, if the structural handicaps of
the region concerned are too great, by granting operating aid. It
promotes the expansion, modernisation and diversification of
the activities of establishments located in those regions and
encourages new firms to set up there.

It appears from the notification that the areas proposed to be
covered by the notified scheme for the regional aid for the
transportation of round wood,
i.e. the counties of Nordland,
Troms and Finnmark are within the regional aid map for
Norway for 2007-2013. Therefore, the geographical delimita-
tion of the scheme is in line with the provisions of paragraph 70
of the Guidelines on Regional Aid.

3.2. Conditions on sectoral aid schemes under

the Regional aid

3.4. Conditions to grant aid to offset additional transportation costs

guidelines

According to paragraph 10 in Chapter 2 of the State Aid Guide-
lines on Regional Aid, regional aid should, as a general rule, be
granted under a multisectoral aid scheme which forms an inte-
gral part of a regional development strategy with clearly defined
objectives. Such a scheme may also enable the competent autho-
rities to prioritise investment projects according to their interest
for the region concerned. Where it is exceptionally envisaged to
grant aid confined to an area or activity, it is the responsibility
of the EFTA State concerned to demonstrate that the project
contributes towards a coherent regional development strategy

(1) EFTA Surveillance Authority Decision No 85/06/COL of 9 April 2006
amending, for the fifty-sixth time, the procedural and substantive rules
in the field of State aid by introducing a new Chapter 25.B: National
Regional Aid 2007-2013.

According to paragraph 70 of the Guidelines on Regional Aid,
operating aid to offset additional transportation costs may be
authorised by the Authority if it fulfils the following conditions:

— aid may serve only to compensate for the additional cost of
transport, taking into account other schemes of assistance to
transport. While the amount of aid may be calculated on a
representative basis, systematic overcompensation must be
avoided,

(2) Authority's Decision No 143/07/COL of 24 April 2007 on the notified
regional transport aid scheme in Norway; Commission's Decision on
State Aid N 152/07 — Sweden, regional transport subsidy scheme;
Commission's Decision on State Aid N 886/06 — Finland, regional
transport subsidy scheme.

(3) EFTA Surveillance Authority Decision No 226/06/COL of 19 July

2006 on the map of assisted areas and levels of aid (Norway).

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— aid may be given only in respect of the extra cost of the
transportation of goods produced in the low population
density regions inside the national borders of the country
concerned. It must not be allowed to become export aid. No
aid may be given towards the transportation or transmission
of the products of businesses without an alternative location
(products of the extractive industries, hydroelectric power
stations, etc),

— the aid must be objectively quantifiable in advance, on the
basis of an aid-per-ton/kilometre ratio, and there must be an
annual report which, among other things, shows the opera-
tion of the ratio or ratios,

— the estimation of additional costs must be based on the
cheapest form of transport and the shortest route between
the place of production or processing and commercial
outlets using that form of transport. External costs to the
environment should also be taken into account.

3.4.1. Aid towards the transpor tation of products of
businesses without an alter native location

According to the second indent of paragraph 70 of the Regional
Aid Guidelines mentioned above, aid should not be granted
towards transport of
the products of businesses without an
alternative location. Such products have to be produced where
they originate and location is therefore given. Round wood can
be considered as a product without an alternative location. For
this reason,
the Authority has doubts whether aid can be
granted for the transport of round wood in accordance with the
provisions of the Regional Aid Guidelines (1).

This doubt is reinforced by the fact that the regional aid guide-
lines adopted by the European Commission provide for aid
towards transport of primary commodities, raw materials or
intermediate products only in the so-called outermost regions of
the European Community. According to paragraph 81 of the
Commission's regional aid guidelines, ‘[f]or the outermost regions
only, aid may also cover the cost of transporting primary commodities,
raw materials or intermediate products from the place of their produc-
tion to the place of final processing in the region concerned’.

introduced in the Guidelines of

This exception is not
the
Authority, since there are no outermost regions in Norway,
Iceland or Liechtenstein as outermost regions are only those
defined as such under Article 299 EC Treaty (2).

(1) Reference is made to European Commission's Decision on State
Aid 152/07 — Sweden — Regional
transport subsidy scheme.
Under the scheme approved with this Decision, aid can be granted
for the transport of sawn wood products (sågade trävaror) up to a
maximum of 28 000 m3 per production site and calendar year. For
the translation of the different technical terms concerning forestry in
Sweden, reference is made to:
http://www.svo.se/episerver4/templates/SNormalPage.aspx?
id=16854#S
The notified scheme for transport aid foresees the grant of support to
the transport of round wood which, in the opinion of the Authority,
constitutes an unprocessed good without an alternative location within
the meaning of the Regional Aid Guidelines.

(2) Outermost regions in the EU are only the regions defined as such under
Article 299 of the EC Treaty. There are seven ‘outermost regions’:
Guadeloupe, French Guiana, Martinique and Réunion (the four French
overseas departments), the Canaries (Spain), and the Azores and
Madeira (Portugal). Those regions are distinguished by their low popu-
lation density and considerable distance from mainland Europe. The
outermost regions are the subject of a Declaration annexed to the
EC Treaty and may benefit from specific measures on the basis of
Article 299 of that Treaty. This Declaration acknowledges their consid-
erable structural backwardness. The Declaration provides for the possi-
bility of adopting specific measures to assist them as long as there is an
objective need to promote their economic and social development.

However, the areas covered by the notified scheme, Nordland,
Troms and Finnmark, qualify as least populated regions within
the meaning of the Regional Aid Guidelines. It may therefore be
considered whether transport aid schemes which are limited to
so-called least populated regions (3) can be assessed on the basis
of paragraph 69 and whether it is necessary that all conditions
of paragraph 70 must be fulfilled.

The European Commission has recently approved a Swedish
transport aid scheme which includes aid for transport of raw
into least populated
materials and semi-finished products
regions (4) and assessed it under paragraph 80 of the Commis-
sion's Regional Aid Guidelines (5). The Commission stated
the
thereby that
Regional Aid Guidelines were fulfilled. Therefore,
is not
excluded that the Authority may approve an aid scheme on
transport of raw materials and/or semi-finished products into
least populated regions provided that the conditions of para-
graph 69 and 70 of the Authority's Regional Aid Guidelines
(apart from the prohibition on raw materials) are fulfilled.

the main conditions of paragraph 81 of

it

The Authority harbours, however, other doubts
as well
concerning the compatibility of the scheme with the EEA Agree-
ment. These are outlined in the following sections.

3.4.2. Additional costs of transpor t

transportation exist

The granting of transportation aid presupposes that additional
costs of
for undertakings in the areas
covered by the scheme. It is for the EFTA State concerned to
these costs. The Norwegian
demonstrate the existence of
authorities have explained that there are additional costs linked
to transportation in the areas covered by the notified scheme
since the average transportation costs are higher in the north
than in central parts of Norway.

The Norwegian authorities have explained that transportation
costs may be divided into two main elements: costs for loading
and reloading and costs for the actual transportation. The costs
for loading and reloading are not affected by the distance of
transportation. As a result, the total unit costs expressed as
NOK/(m3 × km) decrease with longer transportation distances.
This notwithstanding, Troms and Nordland are the two counties
with the highest average transportation costs with figures
corresponding to NOK 139/m3 and NOK 84/m3 respectively
(no figures have been submitted for Finnmark). These average
costs are well beyond the national average transportation costs
of NOK 61/m3 for road transport.

(3) Or in an outermost region in the case of the EU Member States.
(4) European Commission's Decision on State Aid 152/07 — Sweden —

Regional transport subsidy scheme.

(5) Paragraphs 80 and 81 of the European Commission's Regional Aid
Guidelines correspond to paragraphs 69 and 70 of the Authority's
Regional Aid Guidelines, with the exception of the provisions regarding
the outermost regions which have not been incorporated into the
Authority's Regional Aid Guidelines.

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TABLE

Total and average volumes, transport distances and transport costs for round wood by road in Norway

Source: Norwegian Institute for Forest and Landscape

Fylke

Totale transport-
kostnader
(kr)

Volum
Transportert
(m3)

Transportarbeid
(m3 × km)

Gjennomsnittlig
transportavstand
(km)

Gjennnomsnit-
tlig transport-
kostnad
(kr/m3)

Østfold

Akershus

Oslo

Hedmark

Oppland

Buskerud

Vestfold

Telemark

Aust Agder

Vest Agder

Rogaland

Hordaland

33 117 683

536 431

35 748 809

66,64

35 554 394

579 872

38 022 607

65,57

1 774 807

32 806

1 556 374

47,44

120 242 899

2 450 027

131 989 877

53,87

69 476 796

999 361

76 256 385

76,31

68 753 248

1 022 608

77 987 917

76,26

19 408 615

362 979

18 735 733

51,62

41 778 303

554 296

43 593 381

78,65

17 624 710

266 540

18 329 947

68,77

6 752 494

91 764

7 135 470

77,76

2 217 522

35 118

944 791

26,90

2 208 140

42 207

1 404 898

33,29

Sogn og Fjordane

2 576 421

33 908

1 712 787

50,51

Møre og Romsdal

6 020 469

77 363

5 727 539

74,03

Sør Trøndelag

19 567 654

263 954

19 933 878

75,52

Nord Trøndelag

29 863 350

461 869

32 356 517

70,06

61,74

61,31

54,10

49,08

69,52

67,23

53,47

75,37

66,12

73,59

63,15

52,32

75,98

77,82

74,13

64,66

83,72

Nordland

Troms

Norge

6 728 022

80 364

7 745 512

96,38

1 940 634

13 941

2 181 529

156,48

139,20

485 606 162

7 905 407

521 363 951

65,95

61,43

The Norwegian authorities have submitted a report prepared by the Norwegian Institute of Transport
Economics (Transportøkonomisk Institutt (TØI)) in 2006 to demonstrate the existence of additional transporta-
tion costs for undertakings located in low population density areas in general and in the areas covered by
the scheme in particular. Based on the information obtained from 26 randomly chosen undertakings in
different parts of the country, the report concludes that undertakings located in the most remote and spar-
sely populated parts of Norway have a substantial disadvantage compared to more centrally located under-
takings, due to higher direct and indirect transportation costs.

The Norwegian authorities have provided further statistics prepared by the Norwegian Institute for Forest
and Landscape. These data show that when the transportation of round wood throughout Norway is
assessed, the highest average transportation distances correspond to the counties of Nordland and Troms
(no figures have been submitted for Finnmark).

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Figure: Average transport distance for timber for all counties 2007

Source: Norwegian Institute for Forest and Landscape

According to these data, the national average transportation
distance is 66 km. The Norwegian authorities have explained
that the situation in Troms is peculiar since it combines long
average transportation distances (nearly 160 km in Troms) with
a low total amount of wood transported (only 14 000 m3
in 2007).
the transported volume is higher
(80 000 m3 in 2007) and the average transportation distance a
bit shorter,
i.e. approximately 96 km. Timber from Troms is
mainly in the form of round wood used for wallboard manufac-
turing whereas timber from Nordland is mainly wood used for
pulp production (no information has been submitted for
Finnmark).

In Nordland,

Although the average transportation distance for
is
66 km, the notified scheme for regional aid for the transporta-
tion of round wood foresees the grant of aid in steps, the
shortest of which comprises the distance 50 to 149 km. The
longer the distances the greater the amount of aid, ranging from
NOK 30 per m3 for distances between 50 and 149 km to
NOK 100 per m3 for distances of more than 450 km.

timber

The Norwegian authorities have also explained that the reason
for granting aid for distances as short as 50 km is that roads are
difficult and in a poor condition in this part of the country.
This adds a cost element to the final transportation costs under-
takings have to pay. By way of example, the Norwegian authori-
ties have mentioned that in Nordland only 25 to 30 % of the
timber transport could be done on roads with the highest classi-
fication, whereas 93 % of the transport of pulp wood in the
Oslo region can be carried out on this kind of roads.

sector. Additionally,

As shown above, the Norwegian authorities have stated that
both the transportation distances and costs in these areas are
higher than the national average. In their view, the structure of
the wood industry determines
the transportation distance,
which may have a substantial influence in the profitability of
the
the Norwegian authorities have
explained that the quality and classification of roads is impor-
tant when it comes to transportation costs. This is so because
transportation costs are made up of two elements: costs for
loading and reloading and costs for the actual transportation.
Since loading and reloading costs are independent of the trans-
portation distance,
total unit costs decrease with increasing
distance. The Norwegian authorities have further explained that
low quality timber.
northern Norway has a large amount of
Therefore, the costs of transportation constitute a larger share of
the total costs elsewhere in Norway.

A comparison of this scheme with other (multisectoral) trans-
port subsidy schemes in other European countries shows that
normally transportation costs are subsidised only for longer
distances than 50 km. In the Swedish case for instance, aid for
transportation for a company can only be granted for a stretch
that exceeds 401 km. The Finnish regional
transportation
subsidy is payable for distances of not less than 266 km. There
is only one exception:
in the case that port operations are
carried out in connection with rail or road transportation. In
this case, the transportation subsidy can be paid for rail or road
transportation covering a distance of not less than 101 km. The
general Norwegian transport scheme covers distances over
350 km.

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In the case in question, the Norwegian authorities have not noti-
fied a general multisectoral transportation aid scheme but a
support scheme in favour of a very specific economic sector of
wood processing. The objective of this scheme is to stimulate
and promote local development of wood processing undertak-
ings as a means to enhance business development in a remote
area of Norway. According to the information provided by the
Norwegian authorities, approximately 10 wood processing
undertakings will benefit from the support granted under the
scheme for the transportation of round wood.

While different local conditions of transportation could be rele-
vant for an assessment of the scheme's compatibility with the
EEA Agreement,
in its preliminary assessment, the Authority
questions whether it is justifiable to grant aid for transportation
distances as short as 50 km (without prejudice to the final deci-
sion of the Authority).

Even if such aid could also be granted in least populated
regions, the Authority questions whether the existence of addi-
tional transport costs can be sufficiently justifiable for distances
as short as 50 km.

The Authority further doubts whether the granting of aid in the
framework a sectoral scheme such as the present is in line with
the objective behind the regional aid guidelines.

Finally, the Authority raises the issue of whether the quantifica-
tion of the aid amount on the basis of a differentiated scale of
distances instead of on the basis of an aid-per-ton/kilometre
ratio is justifiable.

Aid must
aid-per-ton/kilometre ratio

quantifiable

be

in advance

on the

basis

of

an

Conclusion

The Norwegian authorities have notified the grant of aid under
this scheme on the basis of maximum grants on a differentiated
scale of distances. This method does not directly comply with
the requirement of the Regional Aid Guidelines that the aid be
quantifiable on the basis of an aid-per-ton/kilometre ratio. The
Norwegian authorities have explained for their administration,
this option is a practical way of simplifying the granting of aid
under the scheme and avoiding unnecessary rigid case-handling
and administrative costs (1). For all potential beneficiaries of the
scheme, the aid is quantifiable in advance as a set maximum
rate of aid per m3 per kilometre. The Authority questions
whether this method is detailed enough to consider that the aid
is quantifiable in advance in the meaning of the Regional Aid
Guidelines.

Eligible means of transport

The eligible means of transport covered by the notified scheme
are transportation of goods by rail, road or sea. Furthermore,
transportation costs must be evaluated taking into account the
most economic way of transport and the shortest way between
the production site and the destination (e.g. place of proces-
sing) (2). Thus, the provision in indent 4 of the guidelines is
complied with.

Summary

For the above-mentioned reasons, the Authority questions the
compatibility of the proposed scheme with the EEA Agreement.
In the EEA aid towards transport of raw materials or inter-
mediate products can normally only be granted in the outer-
most regions of the EU. However, it can be considered whether
transport aid for these products can be granted in the case of
schemes limited to least populated regions.

(1) Further,

the Norwegian authorities have committed to providing
detailed annual reports of all counties in which the operating aid will be
granted. The reports shall give a breakdown of the total expenditure of
aid granted.

(2) The Norwegian authorities have explained in the notification that in
Finnmark, Nordland and Troms the wood industry is scattered and to
some extent even non existent, depending on the areas. In some cases it
may be necessary to use boat transport. According to the figures
provided by the Norwegian authorities, currently 30 % of
the
transported timber volume has been transferred by boat. The average
costs for transportation by ship were NOK 118/m3 which implies an
increase in the average transport cost from forest to industry of more
than NOK 20/m3.

Based on the information submitted by the Norwegian authori-
ties, the Authority has doubts that the scheme for regional aid
the transportation of round wood can be regarded as
for
complying with Article 61(3)(c) of
in
combination with the requirements laid down in the Chapter on
the Authority's State Aid Guidelines on Regional Aid. The
Authority thus doubts that the scheme for Regional aid for
transport of round wood is compatible with the functioning of
the EEA Agreement.

the EEA Agreement,

Consequently, and in accordance Article 4(4) of Part
II of
Protocol 3, the Authority is obliged to open the procedure
provided for in Article 1(2) of Part I of Protocol 3. The decision
to open proceedings is without prejudice to the final decision of
the Authority, which may conclude that the measures in ques-
tion are compatible with the functioning of the EEA Agreement.

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

In light of the foregoing considerations, within one month of
receipt of this decision, the Authority requests the Norwegian
information and data
authorities to provide all documents,
necessary for assessing the compatibility of
the scheme for
Regional aid for the transportation of round wood.

HAS ADOPTED THIS DECISION:

Article 1

The EFTA Surveillance Authority has decided to open the
formal investigation procedure provided for in Article 1(2) of
Part
I of Protocol 3 against Norway regarding the notified
scheme regional aid for the transportation of round wood.

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Article 2

Article 5

The Norwegian authorities are invited, pursuant to Article 6(1)
of Part II of Protocol 3, to submit their comments on the
opening of
investigation procedure within one
month from the notification of this decision.

the formal

Only the English version is authentic.

Article 3

Done at Brussels, 11 June 2008.

The Norwegian authorities are requested to provide within one
month of notification of this decision, all documents, informa-
tion and data necessary for assessing the compatibility of the aid
measure.

For the EFTA Surveillance Authority,

This Decision is addressed to the Kingdom of Norway.

Article 4

Kurt JAEGER

College Member

Kristján Andri STEFÁNSSON

College Member