EU Commission Maritime Cabotage Regulations 2003-2006

8/14/2019 EU Commission Maritime Cabotage Regulations 2003-2006

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Communication from the Commission to the European Parliament, the Council, the

European Economic and Social Committee and the Committee of the Regions on the

interpretation of Council Regulation (EEC) No 3577/92 applying the principle of

freedom to provide services to maritime transport within Member States (maritime

cabotage) /* COM/2003/0595 final */

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIALCOMMITTEE AND THE COMMITTEE OF THE REGIONS on the interpretation of

Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide

services to maritime transport within Member States (maritime cabotage)

TABLE OF CONTENTS

1. Introduction

2. The opening of the maritime cabotage market

2.1. Freedom to provide maritime cabotage services

2.2. The beneficiaries of the freedom to provide services

2.2.1. The concept of Community shipowner

2.2.2. The conditions of registration in a Member State and access to national cabotage

2.3. Opening up the market to ships which are not among the Regulation's beneficiaries

3. The scope of Regulation (EEC) No 3577/92

3.1. Pleasure craft

3.2. Cruise services

3.3. Maritime versus port services

3.4. Feeder services

4. Manning rules

4.1. The content of the manning rules which may be imposed by a host State

4.2. Consecutive cabotage

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4.3. Revision of the manning rules

5. Public service

5.1. Geographical scope of public service links

5.2. Island cabotage routes on which public service obligations may be imposed

5.3. The obligations that may be imposed

5.3.1. The distinction between public service obligations and public service contracts

5.3.2. The principle of non-discrimination.

5.4. The procedure for imposing public service obligations

5.5. Market access and competition on public service routes

5.5.1. Exclusivity

5.5.2. Duration of public service contracts

5.5.3. Bundled routes

5.6. The case of "small islands"

5.7. Public subsidies granted to compensate for public service obligations

6. Safeguard measures

Summary

Drawing on the experience gained during ten years' practical application of Regulation

(EEC) No 3577/92, the Commission has decided in the interests of transparency topublish its interpretation of the provisions of that Regulation.

This Communication is being presented for information purposes only, to help explain

the Regulation to all parties who wish to make use of it. It indicates how the Commission

intends to apply the Regulation. It does not set out either to revise the Regulation or toencroach on the Court of Justice's jurisdiction in matters of interpretation.

The Communication's layout mirrors that of the Regulation.

It starts by specifying the scope of the freedom to provide services in the maritime

cabotage sector. It indicates who enjoys that freedom and recalls which services the

Regulation covers.

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It goes on to specify the extent of the derogations to the freedom to provide services, as

provided for in the Regulation. There are three such derogations. Firstly, Member States

have the power to impose manning rules on board vessels performing island cabotageservices between two ports on their territory. Secondly, Member States may impose

public service obligations on shipowners in order to ensure an adequate scheduled

transport service to, from and between islands. Lastly, Member States may ask theCommission to adopt safeguard measures to remedy a serious disturbance of the internal

market.

1. Introduction

Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide

services to maritime transport within Member States (maritime cabotage) [1], which wasadopted when the internal market was created, is now ten years old. Since its entry into

force on 1 January 1993, maritime cabotage has undergone gradual liberalisation. Certain

services were exempted from the application of the Regulation for a number of years.

Since 1 January 1999 virtually all maritime cabotage services have been liberalised. Onlytwo types of island cabotage service still qualify for derogations in Greece: scheduled

passenger and ferry services, and services performed by vessels of less than 650 gt.

[1] OJ L 364, 12.12.1992, p. 7.

Since 1993, the Commission has reported several times on the economic and legal

progress of liberalisation [2], but has not addressed the problems of interpretation raised

by the Regulation. Many such problems have been raised. This is witnessed by the

dozens of enquiries the Commission has received from Member States, and from naturaland legal persons. It is also apparent from the infringement proceedings the Commission

has had to institute against Member States whose legislation it believed ran counter to theRegulation. Several of these issues have been referred to the Court of Justice of theEuropean Communities.

[2] COM(95) 383, COM(97) 296, COM(2000) 99, COM(2002) 203.

With the experience afforded by several years of implementation, the Commission

believes it would be useful to indicate how it intends to interpret the provisions of theRegulation.

The Commission's first concern is transparency. It has assumed positions on issues

relating to the implementation of the Regulation on many occasions, but always on abilateral basis. Yet the questions certain persons raise are often of direct interest to others.

The Commission's second concern is clarification. Some of the Regulation's provisionsare not altogether clear to anyone who does not apply them on a daily basis. This

Communication is intended to help explain the text of the Regulation to both those who

apply it and those who hope to rely on it.

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This Communication merely presents the Commission's interpretation of the Regulation

for information purposes. It does not set out to revise the Regulation or to encroach on

the Court of Justice's jurisdiction in matters of interpretation. If a future judgement of theCourt of Justice contradicts the Commission's analysis, the Commission will of course

comply with it without delay.

For ease of reading, this Communication follows the order of the provisions in the

Regulation. Only some of the provisions are reproduced, so readers are advised to refer tothe text of the Regulation.

2. The opening of the maritime cabotage market

2.1. Freedom to provide maritime cabotage services

Article 1 of Regulation (EEC) No 3577/92 liberalised maritime cabotage in the countries

where that economic sector was reserved for nationals. Freedom to operate between two

ports in the same Member State is offered to all Community shipowners. [3]

[3] For the beneficiaries of the freedom to provide services, see point 2.2.

The Commission considers that this freedom may in no circumstances be subjected to

schemes of prior authorisation, in particular schemes coupled with restrictive conditions[4]. At the very most, Member States may ask shipowners to supply advance information

on the services they intend to provide. Similarly, the Commission does not believe

Member States can require companies to have a representative on their territory.

[4] See, however, the rules set out in Sections 4 and 5.

The standstill clause in Article 7 of the Regulation, which remains valid even though theArticle of the Treaty to which it refers has been deleted, in principle prohibits Member

States from introducing restrictions on the freedom to provide services which did not

exist before the Regulation entered into force.

2.2. The beneficiaries of the freedom to provide services

Article 1 of the Regulation stipulates who the beneficiaries are of the freedom to provide

maritime cabotage services. They are Community shipowners (1) who have their ships

registered in a Member State (2) and flying the flag of that Member State (3), provided

that they comply with the conditions for carrying out cabotage in that Member State (4).

Conditions (1), (2) and (4) imposed by the Regulation merit closer attention. The

question also arises of the opening of the market to vessels which do not comply with the

conditions listed above.

2.2.1. The concept of Community shipowner

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Article 2(2) of the Regulation distinguishes three types of Community shipowner.

"(a) nationals of a Member State established in a Member State in accordance with the

legislation of that Member State and pursuing shipping activities;

(b) shipping companies established in accordance with the legislation of a Member Stateand whose principal place of business is situated, and effective control exercised, in a

Member State; or

(c) nationals of a Member State established outside the Community or shipping

companies established outside the Community and controlled by nationals of a MemberState, if their ships are registered in and fly the flag of a Member State in accordance with

its legislation."

The matter which has raised the most queries is the definition of the concept of "control"

to which the Regulation refers in two of the three categories of Community shipowner.

The Regulation states that Community shipowners include "shipping companies

established in accordance with the legislation of a Member State and whose principal

place of business is situated, and effective control exercised, in a Member State" (Article

2(2)(b)). The Commission considers that the concept of "effective control in a MemberState" means in this context that the major decisions are taken and the day-to-day

management performed from Community territory and that management board meetings

are held in the territory of the Community.

Also included among Community shipowners are "nationals of a Member State

established outside the Community or shipping companies established outside the

Community and controlled by nationals of a Member State, if their ships are registered inand fly the flag of a Member State in accordance with its legislation" (Article 2(2)(c)).The Commission considers that the concept of "control by nationals of a Member State"

referred to in that Article means that the majority of the company's capital is held by

Community nationals.

The condition that the ship should be registered in a Member State also warrantsclarification.

2.2.2. The conditions of registration in a Member State and access to national cabotage

The Regulation does not list the Member State registers for which the conditions ofregistration and of access to national cabotage are met. Such a list would in any event beliable to change over time.

The condition of registration in a Member State assumes that the register in question is

located in a territory in which the Treaty and the laws deriving from it apply.

Accordingly, ships entered in the Kerguelen (French Austral and Antarctic Territories)

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register or the registers of the Dutch Antilles, the Isle of Man, Bermuda or the Cayman

Islands are not among the beneficiaries of the Regulation [5].

[5] By and large, these territories form part of the overseas countries and territoriessubject, by virtue of Article 299(3) of the Treaty, to special arrangements for association

with the Member States.

By contrast, ships registered in Gibraltar are among the Regulation's beneficiaries as the

Treaty applies to that territory [6]. Nonetheless, ships entered in this register could berefused access to Community cabotage if it were established that they were not

effectively subject to the Treaty and to the Community law derived from it.

[6] Article 299(4) of the Treaty stipulates that "the provisions of this Treaty shall apply to

the European territories for whose external relations a Member State is responsible".

The Regulation also provides that for a ship from a Member State to be able to carry out

cabotage in another Member State it must first comply with all the conditions for carryingout cabotage in the Member State in which it is registered.

Accordingly, ships which do not enjoy access to national cabotage are not entitled to

access to the markets of the other Member States either. Similarly, ships which enjoyconditional access to the national market may have similar conditions placed upon them

if they wish to operate in another Member State. For example, if registration in the

second register X of a Member State is subject to the condition that the ship operate atleast half the year on international routes, the ship entered in that register X will not be

able to demand broader access to cabotage in the other Member States (it will not be

entitled to provide scheduled services there all year round) [7].

[7] On this point, see the Fourth Commission report on the implementation of CouncilRegulation 3577/92 applying the principle of freedom to provide services to maritime

cabotage (1999-2000) COM(2002) 203 pp. 5 and 6.

2.3. Opening up the market to ships which are not among the Regulation's beneficiaries

Several Member States have opened up their markets more fully than the Regulationrequires, whether erga omnes, by means of bilateral agreements or by means of

individual authorisations. Such practices do not infringe Community law.

3. The scope of Regulation (EEC) No 3577/92

Article 2(1) of Regulation (EEC) No 3577/92 indicates that the Regulation applies to

maritime transport services (the carriage of passengers or goods by sea) within a MemberState. It goes on to provide an indicative list of the types of cabotage service covered by

the Regulation.

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Since the Regulation entered into force, four main questions have been raised regarding

its scope. Do pleasure craft fall within the scope of the Regulation? Does the cabotage leg

of an international cruise service fall within the scope of the Regulation? Do servicesprovided by vessels such as tugs fall within the scope of the Regulation? Should feeder

services be considered as cabotage or as international services? These questions are

addressed individually below.

3.1. Pleasure craft

Regulation (EEC) No 3577/92 only covers maritime services "normally provided for

remuneration". Accordingly, most pleasure craft activities fall outside its scope.

3.2. Cruise services

Cruise services do fall within the scope of Regulation (EEC) No 3577/92 when they are

provided within a Member State (see Articles 3(1) and 6(1) of the Regulation). The

question is whether the cabotage leg of an international cruise service also falls within thescope of the Regulation.

The Commission takes the view that the Regulation only applies when passengers are

embarked/disembarked in the Member State where the cabotage leg takes place.

A cruise service starting in Member State X or a third country and ending in a third

country or Member State X and calling at ports in a Member State Y does not come

under Regulation (EEC) No 3577/92 if no passengers join or leave the cruise in MemberState Y. In that case, it is 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 which applies [8].

[8] OJ L 378, 31.12.1986, p. 1.

3.3. Maritime versus port services

Do services provided by vessels such as tugs fall within the scope of Regulation (EEC)

No 3577/92? The text of the Regulation itself does not answer this question. To clarify

the status of a number of services normally provided near the coast (e.g. towing, pilotage,

dredging), it is useful to recall the general legal framework applying to the provision ofservices.

In the Services Chapter of the Treaty, Article 49 provides that "restrictions on freedom to

provide services within the Community shall be prohibited in respect of nationals of

Member States who are established in a State of the Community other than that of theperson for whom the services are intended". However, that Article does not apply to

"services in the field of transport". Article 51(1) of the Treaty provides that "freedom to

provide services in the field of transport shall be governed by the provisions of the Titlerelating to transport". The Transport Title of the Treaty indicates that, in respect of sea

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transport, it is for the Council to decide on any appropriate provisions that may be laid

down (see Article 80(2) of the Treaty).

Thus far, the Council has adopted two Regulations applying the principle of freedom toprovide services to the maritime transport sector: Regulation (EEC) No 4055/86

concerning trade between Member States and between Member States and third countriesand Regulation (EEC) No 3577/92, which concerns trade within Member States. Both

Regulations apply to the carriage of passengers and goods by sea.

A proposal for a Directive applying the principle of freedom to provide services to port

services is also under discussion in the Council and the European Parliament [9]. It

applies to the technical-nautical services of pilotage, towage and mooring provided for

port users, either within the port area or on the waterway access to and from the port orport system [10].

[9] COM(2002) 101 final.

[10] The scope of the draft Directive also includes cargo handling and passenger services.

Accordingly, of the various services provided near the coast, those such as dredging

which are not services "in the field of transport" come under Article 49 of the Treaty,while services "in the field of transport", such as towing, come under the above-

mentioned legislation based on Article 80(2) of the Treaty.

To sum up, as regards "services in the field of transport", technical-nautical servicesprovided within the port area as defined by the draft Directive would be subject to that

Directive. Technical-nautical services involving the deep-sea carriage of goods or

passengers, outside the port area, are subject to Regulation (EEC) No 4055/86 andRegulation (EEC) No 3577/92. In practice, this mainly concerns the towage of shipsfollowing a breakdown or the towage of rigs into position.

The Commission would point out that the carriage of passengers by boat is subject to

Regulation (EEC) No 3577/92 even when the service takes place within a single "port

system" as defined by the legislation of the Member State concerned (e.g. the crossing ofan estuary by sea). Similarly, the Commission takes the view that the carriage of

passengers by boat for touristic purposes starting and ending in the same port is covered

by the Regulation.

3.4. Feeder services

Feeder services are services by which a carrier unloads goods from a vessel that has

sailed from a point of departure in order to transfer the same goods on to another vessel

which continues the journey to a port of destination. The service is normally carried outunder a through bill of lading. The question has been raised whether such services should

be considered as international services falling within the scope of Regulation (EEC) No

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4055/86 (which does not impose any flag requirement) or as cabotage services falling

within the scope of Regulation (EEC) No 3577/92 (where there is a flag requirement).

In February 1996, the Commission consulted the Member States on this issue. Theconsultation revealed that in all the Member States where cabotage services are reserved

for Community flagged vessels in accordance with Regulation (EEC) No 3577/92, feederservices are considered to be cabotage services (the sole exception is Portugal), whereas

in the rest of the Member States, feedering is free. The Commission therefore consideredthat Member States could reserve feeder services for Community-flagged vessels.

It should be noted, however, that allowing a company to perform feeder services for the

carriage of international cargo following or preceding an international voyage by the

same company may lead to substantial savings in the cost of transport.

The Commission therefore takes the view that this issue will require further examination.

***

Having clarified the scope of the freedom to provide maritime transport services as

established by the Regulation (EEC) No 3577/92, the Commission will now examine the

derogations to this freedom introduced by the Regulation.

The Regulation provides for three types of derogation. Freedom to provide island

cabotage services may be limited by the imposition of manning rules (see Section 4

below) and public service obligations (see Section 5) by the Member States concerned.Freedom to provide services may also be temporarily suspended in the event of a serious

disturbance of the internal transport market (see Section 6).

4. Manning rules

Questions of manning have traditionally been the responsibility of the flag States. The

rules vary greatly from one register to another. For instance, some Member States imposestrict nationality conditions requiring all crew members to be Community nationals.

Others merely reserve the posts of master and chief officer for Community nationals.

These different nationality requirements translate into major differences in cost from oneregister to another.

To limit intra-Community competition on the most sensitive routes, Article 3 of the

Regulation provides that "host" Member States may impose their own manning rules onships carrying out island cabotage. "Host" Member States may also decide the manningrules applicable to small ships (ships smaller than 650 gt). In practice, five Member

States have chosen to avail themselves of these provisions of the Regulation.

However, so as not to void the principle of freedom to provide services of its content, the

Regulation stipulates that the rules of the flag State will continue to apply to cargo ships

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over 650 gt carrying out island cabotage where the voyage concerned follows or precedes

a voyage to or from another State ("consecutive cabotage").

These provisions raise two sets of questions regarding the extent of the host State'scompetence.

The first relates to the content of those manning rules for which the host State is

responsible, while the other concerns the boundary between the competence of the host

State and that of the flag State in the case of consecutive cabotage.

The question has also been raised whether it is the host State's rules or the flag State'srules which apply to cruise liners carrying out island cabotage. The Commission

considers the Regulation to be very clear on this point: for cruise liners, the manning

rules are the responsibility of the flag State (see Article 3(1) of the Regulation). Thismatter has been referred to the Court of Justice.

4.1. The content of the manning rules which may be imposed by a host State

The Regulation does not specify which "matters relating to manning" are the

responsibility of the host State. Some people claim the host State's competence is

unlimited (the Regulation refers to "all" manning rules). The Commission takes a morerestrictive approach. It believes the host State's competence needs to be limited in order

to safeguard the principle of freedom to provide services, in respect of which that

competence is a derogation.

The Commission considers that host States are competent to specify the required

proportion of Community nationals on board ships carrying out island cabotage (and

ships smaller than 650 gt). A Member State may therefore require the crews of such shipsto be composed entirely of Community nationals. Member States may also require theseafarers on board to have social insurance cover in the European Union. In terms of

working conditions, they may impose the minimum wage rules in force in the country.

However, as regards the rules on safety and training (including the languages spoken onboard), the Commission considers that Member States may do no more than require

compliance with the Community or international rules in force (STCW and SOLAS

Conventions), without disproportionately restricting the freedom to provide services.

4.2. Consecutive cabotage

Article 3(3) of the Regulation stipulates that "from 1 January 1999, for cargo vessels over650 gt carrying out island cabotage, when the voyage concerned follows or precedes a

voyage to or from another State, all matters relating to manning shall be the responsibility

of the State in which the vessel is registered (flag State)".

The Commission takes the view that flag rules must apply only where goods actually are

carried during the international leg of the voyage which follows or precedes the national

leg of the voyage.

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Were this not the case, shipowners could circumvent the rules of the host State by adding

a fictitious international voyage to their island cabotage journey. That is why the

Commission has accepted that Member States may continue to apply the host State's ruleswhere the international voyage which follows or precedes the island cabotage is made in

ballast. The Commission nonetheless considers that the flag State's rules may apply to

Community ships which carry out an island cabotage voyage after having performed anoperationally and commercially independent voyage to or from another State and which,

in making their way to the port of loading for the island cabotage voyage, perform a

journey in ballast which is sufficiently short and inconsequential for the island cabotagevoyage in practice to indeed follow or precede an international voyage.

The manning rules applicable where the ship concerned is fulfilling public service

obligations are specified in point 5.3.2.2.

4.3. Revision of the manning rules

According to the Regulation, definitive manning arrangements were to have been adoptedby the Council before 1 January 1999 on the basis of a Commission proposal following a

detailed examination of the economic and social consequences of the liberalisation of

island cabotage.

The Commission presented a report on the matter to the Council on 17 June 1997, and aproposal for a regulation on 29 April 1998 [11]. The proposal was for a generalisation of

the flag State's responsibility for manning issues. The host State retained responsibility

for ships smaller than 650 gt and for determining the required proportion of Community

nationals in the crews of ships carrying out scheduled passenger and ferry services(including mixed services and scheduled cruise services). Seafarers from third countries

on board such ships were to have been subject to the same working conditions asresidents of Member States.

[11] COM(1998) 251 final.

The Commission proposal failed to win the approval of the Member States. The

Commission therefore proposed that it be withdrawn on 11 December 2001. The

Commission currently has no plans to present a new proposal. Accordingly, the rules laiddown in Article 3 of the Regulation will not be amended in the short term.

5. Public service

The maritime transport of passengers and goods is vital for the inhabitants of Europe's

islands. That is why a special set of rules was drawn up to protect some of these maritime

links not adequately served by the market.

The Regulation offers Member States a framework to organise in a compatible way

market intervention through restrictions on market access or funding relating to public

service obligations on maritime services. The purpose of this Section is to further clarify,

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where necessary, the conditions laid down by the Regulation with the objective of

rendering public intervention compatible with general Treaty rules.

5.1. Geographical scope of public service links

According to the wording of Article 4(1) of the Regulation, public service links have toserve routes to, from and between islands. Long estuaries or fjords which lead to a detour

of about 100 km by road [12] may be treated as islands for the purposes of this section as

they may cause a similar problem by isolating conurbations from each other.

[12] The ratio between the distance around the estuary and the distance across should bearound 10 or greater.

5.2. Island cabotage routes on which public service obligations may be imposed

It is for the Member States (including regional and local authorities where appropriate) to

determine which routes require public service obligations [13]. In particular, publicservice obligations may be envisaged for regular (scheduled) island cabotage services in

the event of market failure to provide adequate services.

[13] It is not for shipowners to set public service obligations.

According to the conditions laid down by the Regulation, Member States may impose

public service obligations in order to "ensure the adequacy" of regular maritime transportservices to a given island (or in relation to an estuary), where Community shipowners, if

they were considering their own commercial interest, would not provide services of an

adequate level or under the same conditions [14]. Trade should otherwise remain free.

[14] See Recital 9 and Article 2(4) of the Regulation. See also the judgement in Case C-205/99 (reference to the Court under Article 234 of the Treaty by the Tribunal Supremo,

Spain, for a preliminary ruling in the proceedings pending before that Court between

Asociacin Profesional de Empresas Navieras de Lneas Regulares (Analir) and othersand Administracin General del Estado), paragraphs 31 et seq., [2001] ECR I-1271.

When imposing public service obligations for services described in Article 4(1) of the

Regulation, Member States must limit their intervention to the essential requirements

referred to in Article 4(2) and fulfil the requirement of non-discrimination as laid downby Article 4(1) of the Regulation in respect of all Community shipowners interested in

serving the route. This requirement must be strictly observed when deciding on thecontent of the obligations to be fulfilled and during the administrative procedure resultingin the selection of an operator of a given service or establishing the amount of

compensation.

5.3. The obligations that may be imposed

5.3.1. The distinction between public service obligations and public service contracts

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A distinction is made in Regulation (EEC) No 3577/92 between "public service

obligations" (see Article 2(4) and Article 4(2) of the Regulation) and "public service

contracts" (see Article 2(3)). Public service contracts are the instrument normally used toenshrine public service obligations where a horizontal approach applying to all

shipowners intending to serve a given route may not be sufficient to meet the essential

transport needs, in particular general conditions concerning the quality of a given service.

Article 4(2) of the Regulation sets out an exhaustive list of requirements that may beintroduced when "public service obligations" are imposed. Article 2(3) of the Regulation

provides only an indication of the scope of public service contracts; Member States may

go further. In practice, quality requirements are often part of "public service contracts",but cannot be introduced as part of "public service obligations". With regard to "public

service obligations", the requirement relating to the shipowners' "capacity to provide the

service" may include an obligation related to their solvency as well as the requirementthat they have no outstanding tax and social security debts [15]. The Commission takes

the view that the obligation to use a fast ferry may also fall within this category.

[15] Case C-205/99, cited above, paragraphs 45 to 51.

When public service obligations are imposed, the requirements relating to the regularity

and frequency of the service may be met collectively - and not individually - by all theshipowners serving the same route [16].

[16] If an island needs to be served 4 times a week and two shipowners are willing to

participate in the trade, each of them should only commit itself to operating twice a week

or, respectively, once and three times a week.

5.3.2. The principle of non-discrimination.

Pursuant to the principle of non-discrimination laid down by the Regulation, Member

States must not set obligations that are tailor-made for a given shipping company and that

would prevent other Community shipowners from entering the market or applyobligations with that effect.

In particular, the Commission would draw the attention of the Member States to the

problems raised by the following two types of provision.

5.3.2.1. The taking-over of vessels

Firstly, the question has been raised whether a Member State, when putting a publicservice contract out to tender, could require the successful bidder to take over vessels and

crews from the previous operator. The Commission takes the view that, in most cases,

such an obligation would infringe Regulation (EEC) No 3577/92 as it would bediscriminatory. It would prevent Community shipowners from bidding with their own

vessels and would give an advantage to the incumbent operator should the latter be a

candidate for its own succession.

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Member States have several administrative means at their disposal for imposing "public

service obligations", applied to all operators of a given route, such as a declaration

regime, a licensing system or an authorisation system. Member States may also imposepublic service obligations by concluding public service contracts with one or a limited

number of operators.

The Court of Justice, in Case C-205/99, stated that a procedure as restrictive as an

authorisation procedure is acceptable provided that it is necessary, proportionate to theaim pursued and based on objective, non-discriminatory criteria which are known in

advance to the undertakings concerned. Companies should also be given the right to

appeal against any decision taken against them [18].

[18] Case C-205/99.

It must be stressed, however, that it would be difficult for a Member State to introduce an

authorisation system after the entry into force of the Regulation without infringing the

standstill provision laid down by Article 7 of the Regulation. In principle, only MemberStates which had an authorisation system in force before the entry into force of the

Regulation may continue to implement it.

When the competent authority of a Member State concludes a public service contract, it

also has to respect the applicable procurement rules. Procurement law entails, at theminimum, a sufficient degree of publicity, in order to ensure an effective competition, as

well as the organisation of a transparent and non-discriminatory selection procedure

proportionate to the aim to be achieved [19]. In addition, for the award of contracts

falling within the scope of Council Directive 92/50/EEC of 18 June 1992 relating to thecoordination of procedures for the award of public service contracts [20], technical

specifications must comply with certain rules and there is an obligation to publish therelevant contract award notice in the Official Journal of the European Union.

[19] See the Commission interpretative communication on concessions under

Community law (OJ C 121, 29.4.2000, p. 2), as well as the judgement in Case C-324/98

Teleaustria and Telefonadress v Telekom Austria [2000] ECR I - 10745; see also point

5.3.2 above.

[20] OJ L 209, 24.7.1992, p. 1.

The Commission takes the view that, in general, the awarding of public service contracts

risks to discriminate between operators, as normally only one operator of a given route isconcerned. It therefore considers that launching an open Community-wide invitation totender is in principle the best way to ensure non-discrimination (on these matters, see also

point 5.6 below [21]).

[21] In principle, an independent authority should be responsible for the whole procedure.

However, the Commission recognises that, in some cases, it might be sufficient for only

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the final part of the procedure (evaluation of the bids and adoption of the final decision)

to be entrusted to an independent body.

The Commission does not require the Member States to notify every public servicecontract they conclude (should the contract involve public compensation, reference is

made to point 5.7 of this communication). The notification obligation laid down byArticle 9 of the Regulation only refers to acts with a broader scope such as a general legal

framework for cabotage services.

5.5. Market access and competition on public service routes

By imposing public service obligations, Member States intervene in the conditions of

market access on certain routes, which may distort competition if not done in a non-

discriminatory way. Such interventions may be considered both legitimate and lawful inview of the aim pursued (to ensure the adequacy of regular (scheduled) transport services

to, from and between islands). Any intervention in relation to a public service obligation

should remain proportionate to the aim pursued. Should it go beyond what is strictlyneeded, it would unnecessarily restrict a freedom which is essential for the proper

functioning of the internal market. The Commission wishes to address three topics related

to this issue.

5.5.1. Exclusivity

Granting exclusivity to a shipowner on a public service route normally allows MemberStates to achieve the least burden to the community but it restricts the traditional freedom

of trade in the maritime transport sector.

A fair balance should be established between the two principles.

In duly justified cases exclusivity may be considered the only adequate instrument tomeet the essential transport needs, when granted for a limited period of time and on the

basis of an open, fair and non-discriminatory Community-wide award procedure.

Exclusivity may also be awarded in a way which always restricts access for additional

services under non-discriminatory conditions while safeguarding the performance of theoperator providing the services meeting the essential transport needs under exclusive

rights.

The Commission stresses, however, that in many cases, less restrictive measures thanexclusivity may be taken in order to avoid "market skimming" and to diminish theamount of State aid needed. An operator contractually bound to fulfil public service

obligations all year round, without an exclusive right, might suffer from the behaviour of

another operator who, in the absence of any public service obligations could enter themarket only for the more profitable months of the year and seriously reduce the first

operator's earnings.

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The Commission considers that light public service obligations may be imposed on all

operators of the same route in parallel to a public service contract concluded with one

operator [22]. For example, a condition could be set according to which any shipownerentering a route where a public service contract is in force which imposes all year round

services will have to operate all year round as well.

[22] On the possibility for a Member State to impose public service obligations in parallel

to a public service contract, see also Case C-205/99, paragraphs 60 to 71.

5.5.2. Duration of public service contracts

The Regulation does not set any maximum duration for public service contracts.

However, it follows from Article 1 and Article 4 of the Regulation that public service

contracts should have a limited duration in order to allow regular and open prospecting ofthe market. With a view to complying with the principle of proportionality in any market

intervention, the least distortional form to meet the essential transport needs should be

chosen. All Community shipowners should be regularly given the opportunity to applyfor the operation of a given service (on this matter, see also point 5.6 below).

In the Commission's view, a contract of a period of more than 6 years does not normally

meet the proportionality requirement.

5.5.3. Bundled routes

Member States often wish to group public service routes to and from different islandsinto a single bundle in order to generate economies of scale and attract operators. Bundles

as such are not contrary to Community law provided that bundling does not lead to

discrimination.

The most appropriate size of bundles should be decided by taking account of the bestsynergy to be made in meeting essential transport needs.

5.6. The case of "small islands"

The Commission's attention has been drawn to the fact that cumbersome procedures for

concluding public service contracts in the maritime sector are over-complicated when it

comes to organising services for small islands, which normally only attract localoperators.

In order to reconcile this specificity with the need to comply with the principles of

transparency and non-discrimination, which it considers can be achieved only through

open, fair and non-discriminatory award procedures, the Commission takes the view that,without prejudice to Community procurement rules where applicable, the selection of a

suitable operator entrusted to serve a small island could be carried out following a simple

call for expressions of interest without launching a formal tender, provided that aCommunity-wide announcement of the service - which is very easily organised - is

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maintained. The Commission takes the view that a longer duration of contracts, of 12

years, might be acceptable.

For the purpose of this Communication, experience, and particularly a study carried outon behalf of the Commission, shows that "small islands" could be understood to mean

islands where the total annual number of passengers carried by sea to and from the islandis around 100 000 or fewer. As far as outermost regions are concerned, this threshold

only applies to trade within the region (and not trade between an outermost island and themainland).

The simplified rules may in principle apply to the carriage under public service contracts

of both passengers and goods to and from a "small island". However, goods trade, which

can normally be organised under competitive conditions, should be excluded whereverthere is a risk of unjustifiable market distortion.

Where the same operator serves several small islands, the total number of passengers

carried by that operator in the context of the public service is taken into account whendetermining whether the threshold is reached.

5.7. Public subsidies granted to compensate for public service obligations

The Regulation applies in the same way whether subsidies are granted or not. However,

when State aid is granted in order to compensate for public service obligations, Member

States have to grant it in compliance with Community legislation and in particularRegulation (EEC) No 3577/92 and the Treaty State aid rules as interpreted by the Court

of Justice.

6. Safeguard measures

Article 5 of the Regulation stipulates that Member States may request the Commission toadopt safeguard measures "in the event of a serious disturbance of the internal transport

market due to cabotage liberalisation". Article 2(5) provides that such measures may be

applied for a maximum of one year where problems appear on the market which "are

likely to lead to a serious and potentially lasting excess of supply over demand, are dueto, or aggravated by, maritime cabotage operations, and pose a serious threat to the

financial stability and survival of a significant number of Community shipowners,

provided that the short-term and medium-term forecasts for the market in question do notindicate any substantial and lasting improvements".

This provision has been applied only once, in Spain, when the Regulation first entered

into force [23].

[23] Commission Decision 93/396/EEC of 13 July 1993 on Spain's request for adoptionby the Commission of a prolongation of safeguard measures pursuant to Article 5 of

Regulation (EEC) No 3577/92 applying the principle of freedom to provide services to

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maritime transport within Member States (maritime cabotage) , OJ L 173, 16.7.1993, p.

33.

It should be stressed that individual instances of shipowners on a given route goingbankrupt are not sufficient to warrant the application of this clause.

The cabotage reports published since the Regulation entered into force show that

liberalisation of cabotage has not caused any other serious disturbance of the internal

transport market. It is unlikely that it would cause such a disturbance now, given thatmost services have been liberalised.

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COMMISSION DECISION

of 28 November 2005

on the application of Article 86(2) of the EC Treaty to State aid in the form of public servicecompensation granted to certain undertakings entrusted with the operation of services of general

economic interest

(notified under document number C(2005) 2673)

(2005/842/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the EuropeanCommunity, and in particular Article 86(3) thereof,

Whereas:

(1) Article 16 of the Treaty requires the Community, withoutprejudice to Articles 73, 86 and 87, to use its powers insuch a way as to make sure that services of generaleconomic interest operate on the basis of principles

and conditions which enable them to fulfil theirmissions.

(2) For certain services of general economic interest tooperate on the basis of principles and under conditionsthat enable them to fulfil their missions, financial supportfrom the State intended to cover some or all of thespecific costs resulting from the public service obligationsmay prove necessary. In accordance with Article 295 ofthe Treaty, as interpreted by the case-law of the Court of

Justice and Court of First Instance of the EuropeanCommunities, it is irrelevant from the viewpoint ofCommunity law whether such services of generaleconomic interest are operated by public or privateundertakings.

(3) Article 86(2) of the Treaty states in this respect thatundertakings entrusted with the operation of services ofgeneral economic interest or having the character of arevenue-producing monopoly are subject to the rules

contained in the Treaty, in particular to the rules oncompetition. However, Article 86(2) allows anexception from the rules contained in the Treaty,provided that a number of criteria are met. Firstly,there must be an act of entrustment, whereby the State

confers responsibility for the execution of a certain taskto an undertaking. Secondly, the entrustment must relateto a service of general economic interest. Thirdly, theexception has to be necessary for the performance ofthe tasks assigned and proportional to that end (here-inafter the necessity requirement). Finally, the devel-opment of trade must not be affected to such anextent as would be contrary to the interests of theCommunity.

(4) In its judgment in the case of Altmark Trans GmbH andRegierungsprsidium Magdeburg v Nahverkehrsgesellschaft

Altmark GmbH(1) (Altmark), the Court of Justice heldthat public service compensation does not constituteState aid within the meaning of Article 87 of theTreaty provided that four cumulative criteria are met.First, the recipient undertaking must actually havepublic service obligations to discharge, and the obli-gations must be clearly defined. Second, the parameterson the basis of which the compensation is calculatedmust be established in advance in an objective and trans-parent manner. Third, the compensation cannot exceedwhat is necessary to cover all or part of the costsincurred in the discharge of the public service obli-gations, taking into account the relevant receipts and areasonable profit. Finally, where the undertaking which isto discharge public service obligations, in a specific case,is not chosen pursuant to a public procurementprocedure which would allow for the selection of thetenderer capable of providing those services at the leastcost to the community, the level of compensation neededmust be determined on the basis of an analysis of thecosts which a typical undertaking, well run andadequately provided with means of transport, wouldhave incurred.

(5) Where those four criteria are met, public service compen-sation does not constitute State aid, and Articles 87 and88 of the Treaty do not apply. If the Member States donot respect those criteria and if the general criteria forthe applicability of Article 87(1) of the Treaty are met,public service compensation constitutes State aid that is

subject to Articles 73, 86, 87 and 88 of the Treaty. ThisDecision should therefore only apply to public servicecompensation in so far as it constitutes State aid.

EN29.11.2005 Official Journal of the European Union L 312/67

(1) [2003] ECR I-7747.


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(6) Article 86(3) of the Treaty allows the Commission tospecify the meaning and extent of the exception underArticle 86(2) of the Treaty, and to set out rules intendedto enable effective monitoring of the fulfilment of thecriteria set out in Article 86(2), where necessary. Theconditions under which certain systems of compensation

are compatible with Article 86(2) and are not subject tothe prior notification requirement of Article 88(3) of theTreaty should therefore be specified.

(7) Such aid may be declared compatible only if it is grantedin order to ensure the provision of services that areservices of general economic interest as referred to inArticle 86(2) of the Treaty. It is clear from the case-law

that, with the exception of the sectors in which there areCommunity rules governing the matter, Member Stateshave a wide margin of discretion in the definition ofservices that could be classified as being services ofgeneral economic interest. Thus, with the exception ofthe sectors in which there are Community rulesgoverning the matter, the Commissions task is toensure that there is no manifest error as regards thedefinition of services of general economic interest.

(8) In order for Article 86(2) of the Treaty to apply, theundertaking beneficiary of the aid must have been speci-fically entrusted by the Member State with the operationof a particular service of general economic interest.According to the case-law on the interpretation ofArticle 86(2) of the Treaty, such act or acts ofentrustment must specify, at least, the precise nature,scope and duration of the public service obligationsimposed and the identity of the undertakings concerned.

(9) In order to ensure that the criteria set out in Article86(2) of the Treaty are met, it is necessary to laydown more precise conditions which must be fulfilledin respect of the entrustment of the operation ofservices of general economic interest. Indeed theamount of compensation can be properly calculatedand checked only if the public service obligationsincumbent on the undertakings and any obligationsincumbent on the State are clearly set out in a formalact of the competent public authorities within theMember State concerned. The form of the instrument

may vary from one Member State to another but itshould specify, at least, the precise nature, scope andduration of the public service obligations imposed andthe identity of undertakings concerned, and the costs to

be borne by the undertaking concerned.

(10) When defining public service obligations and in assessingwhether those obligations are met by the undertakingsconcerned, the Member States are invited to consultwidely, with particular emphasis on users.

(11) Moreover, in order to avoid unjustified distortions ofcompetition, Article 86(2) of the Treaty requires thatcompensation does not exceed what is necessary tocover the costs incurred by the undertaking indischarging the public service obligations, account

being taken of the relevant receipts and a reasonableprofit. This should be understood as referring to theactual costs incurred by the undertaking concerned.

(12) Compensation in excess of what is necessary to cover thecosts incurred by the undertaking concerned is notnecessary for the operation of the service of generaleconomic interest, and consequently constitutes incom-patible State aid that should be repaid to the State.Compensation granted for the operation of a service ofgeneral economic interest but actually used by the under-taking concerned to operate on another market is alsonot necessary for the operation of the service of generaleconomic interest, and consequently also constitutesincompatible State aid that should be repaid.

(13) In order to ensure compliance with the necessityrequirement set out in Article 86(2) of the Treaty it isnecessary to lay down provisions relating to the calcu-

lation and monitoring of the amount of compensationgranted. Member States should check regularly that thecompensation granted does not lead to overcompen-sation. Nevertheless, in order to allow a minimum offlexibility for undertakings and Member States, wherethe amount of overcompensation does not exceed 10 %of the amount of annual compensation, it should bepossible for such overcompensation to be carriedforward to the next period and be deducted from theamount of compensation which would otherwise have

been payable. The revenue of undertakings entrustedwith the operation of services of general economicinterest in the field of social housing may vary drama-tically, in particular due to the risk of insolvency of

leaseholders. Consequently, where such undertakingsonly operate services of general economic interest, itshould be possible for any overcompensation duringone period to be carried forward to the next period,up to 20 % of the annual compensation.

ENL 312/68 Official Journal of the European Union 29.11.2005


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(14) To the extent that compensation is granted to under-takings entrusted with the operation of services ofgeneral economic interest, the amount of the compen-sation does not go beyond the costs of the services, andthe thresholds laid down in this Decision are respected,the Commission considers that the development of trade

is not affected to such an extent as would be contrary tothe interests of the Community. In such circumstances,the Commission considers that the compensation should

be deemed to constitute State aid compatible with Article86(2) of the Treaty.

(15) Small amounts of compensation granted to undertakingsproviding services of general economic interest whoseturnover is limited do not affect the development of

trade and competition to such an extent as would becontrary to the interests of the Community. When theconditions set out in this Decision are fulfilled, priornotification should therefore not be required. For thepurpose of defining the scope of the exemption fromnotification, the turnover of undertakings receivingpublic service compensation and the level of suchcompensation should be taken into consideration.

(16) Hospitals and undertakings in charge of social housingwhich are entrusted with tasks involving services ofgeneral economic interest have specific characteristicsthat need to be taken into consideration. In particular,account should be taken of the fact that at the currentstage of development of the internal market, the intensityof distortion of competition in those sectors is not neces-sarily proportionate to the level of turnover and compen-sation. Accordingly, hospitals providing medical care,including, where applicable, emergency services andancillary services directly related to the main activities,notably in the field of research, and undertakings incharge of social housing providing housing for disad-vantaged citizens or socially less advantaged groups,

which due to solvability constraints are unable toobtain housing at market conditions, should benefitfrom the exemption from notification provided for inthis Decision, even if the amount of compensation theyreceive exceeds the thresholds laid down in this Decision,if the services performed are qualified as services ofgeneral economic interest by the Member States.

(17) Article 73 of the Treaty constitutes a lex specialis with

regard to Article 86(2). It lays down the rules applicableto public service compensation in the land transportsector. That Article has been developed by Council Regu-lation (EEC) No 1191/69 of 26 June 1969 on action byMember States concerning the obligations inherent in the

concept of a public service in transport by rail, road andinland waterway (1), which lays down general conditionsfor public service obligations in the land transport sectorand imposes methods for calculating compensation.Regulation (EEC) No 1191/69 exempts all compensationin the land transport sector that fulfils the conditions of

notification under Article 88(3) of the Treaty. It alsoallows Member States to derogate from its provisionsin the case of undertakings providing exclusively urban,suburban or regional transport. Where that derogation isapplied, any compensation for public service obligationsis, in so far as it constitutes State aid, governed byCouncil Regulation (EEC) No 1107/70 of 4 June 1970on the granting of aids for transport by rail, road andinland waterway (2). According to the judgment inAltmark, compensation which does not respect theprovisions of Article 73 cannot be declared compatiblewith the Treaty on the basis of Article 86(2), or on the

basis of any other Treaty provision. Consequently, suchcompensation should not be covered by this Decision.

(18) Unlike land transport, the maritime and air transportsectors are subject to Article 86(2) of the Treaty.Certain rules applicable to public service compensationin the air and maritime transport sectors are to be foundin Council Regulation (EEC) No 2408/92 of 23 July1992 on access for Community air carriers to intra-Community air routes (3) and Council Regulation (EEC)No 3577/92 of 7 December 1992 applying the principle

of freedom to provide services to maritime transportwithin Member States (maritime cabotage) (4). However,contrary to Regulation (EEC) No 1191/69, these Regu-lations do not refer to the compatibility of the possibleState aid elements nor contain an exemption from theobligation to notify under Article 88(2) of the Treaty. Itis therefore appropriate to apply this Decision to publicservice compensation in the air and maritime transportsectors provided that, in addition to fulfilling theconditions set out in this Decision, such compensationalso respects the sectoral rules contained in Regulation(EEC) No 2408/92 and Regulation (EEC) No 3577/92when applicable.

(19) The thresholds applicable to public service compensationin the air and maritime transport sectors should normally

be the same as those applicable in general. However, inthe specific cases of public service compensation for airor maritime links to islands and for airports and portswhich constitute services of general economic interest as


(1) OJ L 156, 28.6.1969, p. 1. Regulation as last amended by Regu-lation (EEC) No 1893/91 (OJ L 169, 29.6.1991, p. 1).

(2) OJ L 130, 15.6.1970, p. 1. Regulation as last amended by Regu-lation (EC) No 543/97 (OJ L 84, 26.3.1997, p. 6).

(3) OJ L 240, 24.8.1992, p. 8. Regulation as last amended by 2003 Actof Accession.

(4) OJ L 364, 12.12.1992, p. 7.


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referred to in Article 86(2) of the Treaty it is moreappropriate to also provide alternative thresholds basedon average annual number of passengers as this moreaccurately reflects the economic reality of these activities.

(20) This Decision is to a large extent a specification of themeaning and extent of the exception under Article 86(2)of the Treaty as it has been consistently applied in thepast by the Court of Justice and the Court of FirstInstance and by the Commission. To the extent that itdoes not modify the material law applicable in this areait should apply immediately. However, certain provisionsof this Decision go beyond the status quo by setting outadditional requirements aimed at enabling effective moni-toring of the criteria set out in Article 86(2). In order toallow Member States to take the necessary measures inthis respect, it is appropriate to foresee a period of oneyear prior to the application of those specific provisions.

(21) Exemption from the requirement of prior notification forcertain services of general economic interest does notrule out the possibility for Member States to notify aspecific aid project. Such notification will be assessed inaccordance with the principles of the Communityframework for State aid in the form of public service

compensation (1

).

(22) This Decision applies without prejudice to the provisionsof Commission Directive 80/723/EEC of 25 June 1980on the transparency of financial relations betweenMember States and public undertakings as well as onfinancial transparency within certain undertakings (2).

(23) This Decision applies without prejudice to theCommunity provisions in force in the fields of publicprocurement and of competition, in particular Articles81 and 82 of the Treaty.

(24) This Decision applies without prejudice to stricter specificprovisions relating to public service obligations that are

contained in sectoral Community legislation,

HAS ADOPTED THIS DECISION:

Article 1

Subject matter

This Decision sets out the conditions under which State aid inthe form of public service compensation granted to certainundertakings entrusted with the operation of services ofgeneral economic interest is to be regarded as compatiblewith the common market and exempt from the requirementof notification laid down in Article 88(3) of the Treaty.

Article 2

Scope

1. This Decision applies to State aid in the form of publicservice compensation granted to undertakings in connectionwith services of general economic interest as referred to inArticle 86(2) of the Treaty which falls within one of thefollowing categories:

(a) public service compensation granted to undertakings withan average annual turnover before tax, all activities included,of less than EUR 100 million during the two financial yearspreceding that in which the service of general economicinterest was assigned, which receive annual compensationfor the service in question of less than EUR 30 million;

(b) public service compensation granted to hospitals and socialhousing undertakings carrying out activities qualified asservices of general economic interest by the Member Stateconcerned;

(c) public service compensation for air or maritime links toislands on which average annual traffic during the twofinancial years preceding that in which the service ofgeneral economic interest was assigned does not exceed300 000 passengers;

(d) public service compensation for airports and ports for

which average annual traffic during the two financial yearspreceding that in which the service of general economicinterest was assigned does not exceed 1 000 000passengers, in the case of airports, and 300 000 passengers,in the case of ports.


(1) OJ C 297, 29.11.2005.(2) OJ L 195, 29.7.1980, p. 35. Directive as last amended by Directive

2000/52/EC (OJ L 193, 29.7.2000, p. 75).


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The threshold of EUR 30 million in point (a) of the first subpar-agraph may be determined by taking an annual average repre-senting the value of compensation granted during the contractperiod or over a period of five years. For credit institutions, thethreshold of EUR 100 million of turnover shall be replaced by athreshold of EUR 800 million in terms of balance sheet total.

2. In the field of air and maritime transport, this Decisionshall only apply to State aid in the form of public servicecompensation granted to undertakings in connection withservices of general economic interest as referred to in Article86(2) of the Treaty which complies with Regulation (EEC) No2408/92 and Regulation (EEC) No 3577/92, when applicable.

This Decision shall not apply to State aid in the form of public

service compensation granted to undertakings in the field ofland transport.

Article 3

Compatibility and exemption from notification

State aid in the form of public service compensation that meetsthe conditions laid down in this Decision shall be compatiblewith the common market and shall be exempt from the obli-gation of prior notification provided for in Article 88(3) of theTreaty, without prejudice to the application of stricter

provisions relating to public service obligations contained insectoral Community legislation.

Article 4

Entrustment

In order for this Decision to apply, responsibility for operationof the service of general economic interest shall be entrusted tothe undertaking concerned by way of one or more official acts,the form of which may be determined by each Member State.The act or acts shall specify, in particular:

(a) the nature and the duration of the public service obligations;

(b) the undertaking and territory concerned;

(c) the nature of any exclusive or special rights assigned to theundertaking;

(d) the parameters for calculating, controlling and reviewing thecompensation;

(e) the arrangements for avoiding and repaying any overcom-pensation.

Article 5Compensation

1. The amount of compensation shall not exceed what isnecessary to cover the costs incurred in discharging the publicservice obligations, taking into account the relevant receipts anda reasonable profit on any own capital necessary for dischargingthose obligations. The compensation must be actually used forthe operation of the service of general economic interestconcerned, without prejudice to the undertakings ability toenjoy a reasonable profit.

The amount of compensation shall include all the advantagesgranted by the State or through State resources in any formwhatsoever. The reasonable profit shall take account of all orsome of the productivity gains achieved by the undertakingsconcerned during an agreed limited period without reducingthe level of quality of the services entrusted to the undertaking

by the State.

2. The costs to be taken into consideration shall comprise allthe costs incurred in the operation of the service of general

economic interest. They shall be calculated, on the basis ofgenerally accepted cost accounting principles, as follows:

(a) where the activities of the undertaking in question areconfined to the service of general economic interest, all itscosts may be taken into consideration;

(b) where the undertaking also carries out activities fallingoutside the scope of the service of general economic

interest, only the costs associated with the service ofgeneral economic interest shall be taken into consideration;

(c) the costs allocated to the service of general economicinterest may cover all the variable costs incurred inproviding the service of general economic interest, a propor-tionate contribution to fixed costs common to both serviceof general economic interest and other activities and areasonable profit;

(d) the costs linked with investments, notably concerning infra-structure, may be taken into account when necessary for theoperation of the service of general economic interest.



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3. The revenue to be taken into account shall include at leastthe entire revenue earned from the service of general economicinterest. If the undertaking in question holds special or exclusiverights linked to another service of general economic interestthat generates profit in excess of the reasonable profit, or

benefits from other advantages granted by the State, these

shall be included in its revenue, irrespective of their classifi-cation for the purposes of Article 87. The Member Stateconcerned may decide that the profits accruing from otheractivities outside the scope of the service of general economicinterest are to be assigned in whole or in part to the financingof the service of general economic interest.

4. For the purposes of this Decision reasonable profit meansa rate of return on own capital that takes account of the risk, orabsence of risk, incurred by the undertaking by virtue of theintervention by the Member State, particularly if the latter

grants exclusive or special rights. This rate shall not normallyexceed the average rate for the sector concerned in recent years.In sectors where there is no undertaking comparable to theundertaking entrusted with the operation of the service ofgeneral economic interest, a comparison may be made withundertakings situated in other Member States, or if necessary,in other sectors, provided that the particular characteristics ofeach sector are taken into account. In determining whatconstitutes a reasonable profit, the Member States mayintroduce incentive criteria relating, in particular, to thequality of service provided and gains in productive efficiency.

5. When a company carries out activities falling both insideand outside the scope of services of general economic interest,the internal accounts shall show separately the costs andreceipts associated with the service of general economicinterest and those of other services, as well as the parametersfor allocating costs and revenues.

The costs linked to any activities outside the scope of theservice of general economic interest shall cover all thevariable costs, an appropriate contribution to common fixedcosts and an adequate return on capital. No compensationshall be granted in respect of those costs.

Article 6

Control of overcompensation

Member States shall carry out regular checks, or ensure thatsuch checks are carried out, to ensure that undertakings arenot receiving compensation in excess of the amount determinedin accordance with Article 5.

Member States shall require the undertaking concerned to repayany overcompensation paid, and the parameters for the calcu-

lation of the compensation shall be updated for the future.Where the amount of overcompensation does not exceed10 % of the amount of the annual compensation, such over-compensation may be carried forward to the next annual periodand deducted from the amount of compensation payable inrespect of that period.

In the sector of social housing, Member States shall carry outregular checks, or ensure that such checks are carried out, at thelevel of each undertaking, to ensure that the undertakingconcerned is not receiving compensation in excess of theamount determined in accordance with Article 5. Any over-compensation may be carried forward to the next period upto 20 % of the annual compensation, provided that the under-taking concerned only operates services of general economicinterest.

Article 7

Availability of information

The Member States shall keep available for a period of at least10 years, all the elements necessary to determine whether thecompensation granted is compatible with this Decision.

Upon a written request from the Commission, Member States

shall provide the Commission with all the information that thelatter considers necessary to determine whether the systems ofcompensation in force are compatible with this Decision.

Article 8

Reports

Periodic reports on the implementation of this Decision,comprising a detailed description of the conditions of appli-cation in all sectors, including the social housing and thehospital sectors, shall be submitted to the Commission byeach Member State every three years.

The first report shall be submitted by 19 December 2008.

Article 9

Evaluation

By 19 December 2009 at the latest, the Commission willundertake an impact assessment based on factual informationand the results of wide consultations conducted by theCommission on the basis, notably, of data provided by theMember States in accordance with Article 8.



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The results of the impact assessment will be made available tothe European Parliament, the Committee of Regions, theEuropean Economic and Social Committee and the MemberStates.

Article 10

Entry into force

This Decision shall enter into force on 19 December 2005.

Points (c), (d) and (e) of Article 4, and Article 6 shall apply from29 November 2006.

Article 11

Addressees

This Decision is addressed to the Member States.

Done at Brussels, 28 November 2005.

For the Commission

Neelie KROES

Member of the Commission



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EN EN

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.5.2006

COM(2006) 196 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL

COMMITTEE AND THE COMMITTEE OF THE REGIONS

updating and rectifying the Communication on the interpretation of Council Regulation(EEC) No 3577/92 applying the principle of freedom to provide services to maritime

transport within Member States (maritime cabotage)


28/29


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For these reasons the Commission intends to apply a threshold of 300 000 passengers per

year, instead of 100 000 passengers, for the purposes of Section 5.6 of the Communication on

the interpretation of Council Regulation (EEC) No 3577/92.

(2) Ships registered in Gibraltar

Section 2.2.2 of the Communication on the interpretation of Council Regulation (EEC) No3577/92 deals with access to cabotage and the conditions of ship registration in the Member

States. Paragraph 3 of Section 2.2.2 addresses ships registered in Gibraltar. The above-

mentioned paragraph provides for the possibility of refusing access to cabotage to Gibraltar-

registered ships if it were established that those ships were not effectively subject to the

Treaty and to the Community law derived from it.

Since the Community set of rules in the field of maritime transport is entirely applicable to

ships registered in Gibraltar, the statement contained in the above-mentioned Paragraph 3 is

incorrect and must be rectified.

Therefore, the Commission points out that ships registered in Gibraltar are entitled to haveaccess to maritime cabotage under the same conditions as any ship registered in a Member

State.

Documents

EU Commission Maritime Cabotage Regulations 2003-2006