Public consultation of the European Commission; Consultation on the Review of the Framework on State Aid to Shipbuilding

Transcription

1 3 December 2010 TEM/3155/ /2010 The European Commission Directorate-General for Competition Public consultation of the European Commission; Consultation on the Review of the Framework on State Aid to Shipbuilding In October 2010, the European Commission launched a public consultation on its website, requesting feedback on the application of the Framework on State Aid to Shipbuilding ("Shipbuilding Framework"). The Framework will expire on 31 December Feedback can be submitted via the Internet, either using a questionnaire drawn up by the Commission, or in free form. The Ministry of Employment and the Economy coordinates state-aid related matters in Finland and the administration of notified innovation aid granted under the Shipbuilding Framework. In addition, the Ministry has informed various stakeholders of their opportunity to submit responses to questions posed by the Commission. As feedback to the Commission s questions, the Ministry of Employment and the Economy therefore states the following. The information given in this missive is public. SECTION A: GENERAL QUESTIONS A.1. a) Application of the Shipbuilding Framework by public authorities General remarks on the application of the Shipbuilding Framework Innovation aid for shipbuilding is still considered necessary, in order to remain competitive against Asian shipyards with their aggressive pricing and strong state aid policies. Although innovation aid can be regarded as sector-specific aid, which the European Commission in principle wishes to abandon, it also steers industry towards developing new technology. This results in new, innovative solutions for vessels. Innovation aid acts as an additional incentive for the introduction of more innovative products. Export credits are also extremely important because, in the current circumstances, the financing markets are as yet unable to single-handedly manage the long-term financing required for shipbuilding. The administrative burden imposed by the application of the Shipbuilding Framework is not considered strenuous. TYÖ- JA ELINKEINOMINISTERIÖ ARBETS- OCH NÄRINGSMINISTERIET MINISTRY OF EMPLOYMENT AND THE ECONOMY PL 32 (Aleksanterinkatu 4) PB 32 (Alexandersgatan 4) P.O. Box 32 (Aleksanterinkatu 4) Valtioneuvosto Puh Statsrådet Tfn FI Government Tel Faksi (09) Fax (09) Fax

2 2 (8) Innovation aid On the basis of the Innovation aid programme for the Finnish shipbuilding industry (State Aid No N28/2008), approved by the European Commission on 28 May 2008, a total of 22m in innovation aid has been granted to one shipyard for the period 2004 June Export credits Finnvera, a specialised financing company owned by the State of Finland, Finland s official Export Credit Agency, has also granted export credits to the shipbuilding industry. Finnvera s statistics: Clause A.1. a) Export Credit Guarantees Legislation 1) Act on the State s Export Credit Guarantees (Act No. 422/01) 2) Act on the Ship Guarantees granted by the State (Act No. 573/72) Pre-delivery guarantees provided on behalf of Finnish shipyards Pre-delivery guarantees are provided on behalf of Finnish shipyards. These are intended to partly underwrite the financing of vessel construction: 1) Finance guarantees are granted to partly underwrite a construction loan taken out by a yard. Bond guarantees are used as advance payment guarantees or performance guarantees. If the buyer is a foreign company, guarantees are provided under the above legislation denoted under point 1). On the other hand, if the buyer is a Finnish company, they are provided under the legislation denoted above under point 2). Guarantees are granted according to the rules set out in the Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees. Guarantees are provided on commercial terms and do not include any subsidy element. Information on guarantee schemes for the pre-delivery financing of ships has also been submitted to the European Commission, which made a final decision on the scheme on C(2007)1406. Year Currency: EURO ,975, ,115, ,315, ,350, ,300, ,560, / Total 1,660,615,000 Post-delivery guarantees provided on behalf of shipping companies: Post-delivery guarantees are granted to lenders providing financing to foreign ship owners for the purchase of vessels built in Finland (export credit guarantees provided under the legislation denoted above in point 1)) or to Finnish ship owners for the purchase of vessels from Finland or abroad

3 3 (8) (guarantees provided under the legislation denoted above in point 2)). These guaranteed loans must comply with the terms of the OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits for Ships. Year Currency: EURO ,101, ,440, ,000, ,600, ,000, / ,000,000 Total 2,590,141,000 A.2. Aid granted for shipbuilding under other State aid instruments information requested from the public authorities Aid under the horizontal State aid instrument RDI Framework has been granted via Tekes the Finnish Funding Agency for Technology and Innovation, Such aid amounted to approximately 12.4m paid to the shipbuilding industry in (by the end of June), under aid programme (N356/2007). Sum totals paid out as aid vary on a yearly basis. Aid paid to large companies in Finland, as project funding under the RDI framework, typically covers 35 per cent of the project s total costs. In exceptional cases (high novelty value, extensive networking, projects which are 100% of a research nature), aid can amount to 50 per cent of total costs. For the projects presented in this summary, the amount in question was 35 per cent. In , the entire maritime industry cluster was developed in close cooperation with cluster companies. Operations were organised into the MERIKE - Technology Programme for the Finnish Marine Industries, coordinated by the Federation of Finnish Technology Industries/the Association of Finnish Marine Industries (AFMI). The figures in the table below include all projects undertaken by shipbuilding companies involved in the MERIKE Programme. The table indicates aid granted to shipbuilding companies under the MERIKE Programme, to the nearest million, in , with aid representing 35 per cent of total project costs. Year Subsidy granted, in million / TOTAL 12.4

4 4 (8) In 2009, Finnish Metals and Engineering Competence Cluster FIMECC was Tekes key instrument used to provide funding for shipbuilding. An extensive programme titled Innovative Networks has been launched under FIMECC s leadership, coordinated by STX Finland Oy, the programme s largest operator. A.3. Market developments The world s shipbuilding industry remains in a state of major uncertainty, due to the economic recession and low demand for ships. Despite the predicted increase in the number of new orders year-on-year, the outlook is weakened by the prices of new vessels and rising steel prices. In addition, the prevailing intense competition and overcapacity in supply are having a negative impact on future prospects. In the first six months of 2010, Chinese shipyards had 37 per cent of order volumes, while South Koreans commanded 31 per cent, the Japanese 15 per cent and Europeans only 6 per cent. In Finland, shipbuilding industry prospects for 2010 were generally grim at the end of 2009, with 45 per cent of enterprises forecasting that the situation would continue as now (in the autumn of 2009, almost one third of companies had temporarily laid off personnel), 35 per cent forecasting a further decline, and only 15 per cent looking forward to a good Although Finnish shipyards are experiencing hard times due to the financial crisis and the industry s cyclical nature, in the long term the industry expects good preconditions for growth within the special ship and offshore segments. Actors are confident that Finnish strategic expertise, innovation activity and networking will provide the industry with a sound competitive position. Between August 2008 and November 2009, Finnish shipyards were without orders for vessels. In November 2010, four ships remained on the order books: two car & passenger ferries (deliveries planned for 1Q2011 and 3Q2011) and an arctic research vessel (delivery planned for April 2012) being built by STX Finland Oy in Rauma, and a patrol vessel for the Estonian Coast Guard (delivery planned for 2013) by UKI Workboat Ltd in Uusikaupunki. Finland s biggest shipyard, STX Finland Oy in Turku, is experiencing grave difficulties. At the end of October, the shipyard delivered the world s largest cruise liner, M/S Allure of the Seas, to the customer. This constituted the final vessel in the shipyard s order book. The yard has signed a letter of intent for one new car & passenger vessel, but almost all of its employees were laid off after the delivery of M/S Allure of the Seas. STX Finland Oy s Helsinki shipyard also has a very low workload. The Turku shipyard s situation is also affecting its network of subcontractors. Combined, the shipyard and its subcontracting network are estimated to employ a total of 14,000 people, both directly and indirectly. As the shipyard s operations wind down, the number of unemployed in Turku will probably rise to some 15,000, resulting in an unemployment rate of 17 per cent. In the Turku region, the overall unemployment rate may rise close to 15 per cent, one of the worst figures among Finland s major urban regions. The shipyard s primary network comprises a total of 160 companies, the majority of which are located in Southwest Finland, with some in the regions of Satakunta and Uusimaa. If shipyard operations in Turku were closed down for good, one third of these companies would probably survive, either independently, or with the help of labour and industrial policy measures or through subsidies provided by the regional administration. An estimated per cent of the companies would probably decide to terminate operations or go bankrupt. However, the remaining per cent would require active efforts by the employment and economic development authorities, alongside new tools.

5 5 (8) The Commission s questions In Finland s opinion, the EU shipbuilding industry markets are mainly healthy, with no major overcapacity problems. However, overcapacity exists in Asia, where industry investments have been sizeable in recent years. No major overcapacity is evident in the European cruise ship market, in which the Finnish shipbuilding industry specialises. On the other hand, Asian shipyards are also seeking to enter this segment. This suggests that the case may change in the future. Finland emphasises that the EU will continue with its endeavours to create equal competitive terms for the industry world-wide. The OECD Council Working Party on Shipbuilding WP6 is a good forum for this purpose. The Commission must also monitor Member States' actions in the internal market, intervening whenever competition is being distorted. Likewise, stricter measures should be taken against those who violate WTO rules. A.4. Financing of shipbuilding activities The availability of financing and guarantees is having a significant impact on the industry s operating conditions. Together with certain banks, Finnvera Plc has made major contributions to the financing of shipbuilding at shipyards, based on its export guarantee products. In addition, Finnvera Plc and Finnish Export Credit Ltd (FEC) provide post-delivery financing, through financing arrangements made on OECD terms. These include export guarantees, interest equalisations and the so-called refinancing model, introduced for in response to the financial crisis. Finnvera can grant guarantees to ship acquisitions in Finland, on the basis of the Act on the Ship Guarantees granted by the State. An export guarantee is usually granted in the form of a so-called buyer credit guarantee, which lodges security with the lender to cover credit risks due to a foreign buyer, the buyer s bank or the buyer s country. For the exporter, the guarantee arrangement entails receiving the purchase price on cash terms and transferring the credit risk to the lender. According to the sector-specific agreement for the shipbuilding industry, the payback period of a credit with export guarantee can be a maximum of 12 years from delivery, in addition to which a cash payment share of a minimum of 20 per cent is required. The cover provided is usually per cent (in exceptional cases, up to 95 per cent). Finland views the current norm within the industry of per cent cover as unhealthy. According to the interest equalisation system governed by Finnish Export Credit Ltd, FEC, the credit institution grants a client credit on OECD terms. Such a client is either a buyer or exporter of Finnish products or services. Thereafter, FEC concludes an interest equalisation agreement with the credit institution in question. Based on these agreements, Finnish Export Credit bears the interest risk, associated with the gap between fixed CIRR interest and a variable interest rate, in accepting fixed CIRR interest from the credit institution and paying it a market-based interest, which usually varies at six-month intervals. SECTION B: DEFINITIONS AND SCOPE The definitions in Section 2(a) of the Shipbuilding Framework ( shipbuilding means the building, in the Community, of self-propelled seagoing commercial vessels ) and 2(d) ( self-propelled seagoing commercial vessels ) should specify the term commercial vessels. Interpretation is problematic, for instance in cases where the state places an order on the open market for, say, vessels intended for border guard activity. It is unclear whether innovation aid can be granted in the aforementioned situations. In such instances, the customer may also be a state unit engaged in commercial activity and separate from non-commercial activity.

6 6 (8) In Finland, it has furthermore been proposed that certain offshore industry products should be included as a field of application, since the competitive situation within the offshore market is similar to that of the shipbuilding market. SECTION C: SPECIFIC PROVISIONS C.1 Aid for research, development and innovation Maintaining innovation aid to the shipbuilding industry is still both necessary and important, both under the state aid Framework for the shipbuilding industry and under the horizontal RDI Framework. Paragraph 15 of the Framework (innovation aid) is particularly vital, due to the specific characteristics of the shipbuilding industry, such as short production series, the size, value and complexity of the units produced, as well as the fact that prototypes are generally used commercially (paragraph 7 of the Shipbuilding Framework). Innovation aid encourages greater efficiency and competitiveness among Community yards, as stated in Paragraph 5 of the Shipbuilding Framework. This is a particularly important justification, especially in the prevailing market situation where Asian shipyards are engaged in intense competition with European yards over new vessel orders. Paragraph 14 of the Shipbuilding Framework is also justified. C2. Closure aid Under the Section on closure aid, included in the Framework on State Aid to Shipbuilding, aid for expenses resulting from the complete or partial closure of shipyards is considered appropriate. This includes costs such as 1) direct compensation granted to dismissed employees or 2) aid granted for the counselling of dismissed employees. It is still considered expedient that closure aid be maintained under the state aid rules for the shipbuilding industry. In this respect, it should be noted that closure aid primarily involves social costs; the competition-distorting impacts of this form of aid are limited. Although partially corresponding forms of aid have been permitted on the basis of the Commission notice concerning State aid for rescuing and restructuring firms in difficulty, the forms of aid in question cannot be regarded as comprehensive and individualised with respect to the special characteristics of the shipbuilding industry. C3. Regional aid Under the provisions in force concerning state aid to the shipbuilding industry, regional investment aid is permitted for upgrading or modernising existing yards. The permitted maximum levels of aid vary according to development level of the region in question: 22.5 per cent in particularly disadvantaged areas where the standard of living is abnormally low (GDP below 75 per cent of the EU average) or where there is serious underemployment (Treaty on the Functioning of the European Union, Article 107, Section 3(a) 12.5 per cent in areas considered less-developed, under indicators given by the Member State, in relation to the national average (Treaty on the Functioning of the European Union, Article 107, Section 3(c). No Finnish shipyards are located in areas eligible for regional aid. Regional aid is aimed at facilitating the development of regions in the most disadvantaged position, by supporting investments and job creation in such locales. Underpinned by a particular notion of

7 7 (8) justice, regional aid therefore constitutes a clear exception from the leading principle governing EU rules on state aid: the creation of equal operating preconditions for European companies. With regard to the shipbuilding industry s special characteristics, particularly structural overcapacity, the inclusion of a regional aid section (as it stands currently), under sector-specific state aid rules for the shipbuilding industry, can be considered problematic. It can be assumed that the potential positive impacts of regional aid (support for regional development) are largely smaller than its negative impacts on the shipbuilding industry. This is because aid granted on regional grounds may markedly distort competition, thereby influencing trade between Member States. In the worst-case scenario, such aid draws major investments away from areas whose enterprises could have implemented the project in question much more efficiently than competitors located in aid-eligible areas. As a rule of thumb, the continuation of regional aid should be considered with caution. When renewing state aid rules for the shipbuilding industry, the Commission should therefore take account of sector-specific special characteristics. It should do so while applying the balancing test, now commonly used to assess state aid, in examining the compatibility of sector-specific regional aid for the common market.

8 8 (8) C 4. Employment aid On the basis of the current Framework, it has also been possible to grant employment aid. However, Member States have submitted no notifications of such aid. Paragraph of the Framework refers to the block exemption regulation on employment aid that was repealed when the new, general block exemption regulation (800/2008) entered into force in This would also favour the application of horizontal rules and the abolition of employment aid from sectorspecific regulation. On the other hand, it would be important to ensure the future possibility of granting casespecific, indispensable employment aid in individual projects concerning the shipbuilding industry. According to Article 40 of the general block exemption regulation (800/2008) in force, aid in the form of wage subsidies for the recruitment of disadvantaged workers would always require a separate aid scheme. C.5 Export credits and development aid The specific provisions on export credits for the shipbuilding industry should be kept in force, in case the financial markets prove unable to provide the long-term financing required for shipbuilding. SECTION D: OPTIONS FOR THE FUTURE OF THE SHIPBUILDING FRAMEWORK/OTHER ISSUES Even after 2011, the Shipbuilding Framework should be retained in order to provide a long-term basis for shipbuilding industry operations in the current, difficult economic situation. However, the Framework s validity could be extended by six (6) years, with an interim review performed after the first three (3) years. It is extremely important that, in the greatest detail possible, the Commission continuously monitor the application practices of various EU countries shipbuilding frameworks, horizontal aid and any other systems supporting the industry (e.g. tax systems), and intervene if necessary. All EU countries must have a level playing field with respect to aid granting practices. Director General Raimo Luoma Senior Government Secretary Eeva Vahtera