Although readers may find the title of this article to be provocative, this is not the case, as the nature of the Port Authority has been discussed for a long time both by national and European case-law. Moreover, this is an issue that, far from being merely theoretical, has concrete and immediate impacts on the daily activities of ports and port companies.
- Since the 90’s, European case law and the European Commission have laid the foundation for the introduction of competition principles into Italian ports. Most recently an additional further step towards the application of those principles to the work of the Port Authorities has been taken.
European institutions have understood, perhaps before the national courts, the fact that:
- the Port Authorities are the primary bodies entrusted with guaranteeing the observance of competition rules for ports and in ports,
- said Authorities could even be responsible for unlawful anti-competitive acts, such as the abuse of a dominant position, if one considers that the Port Authority is the only party entitled to make the Stateowned port areas available to port enterprises.
- The granting of Port concessions is a particularly “sensitive” matter, and in this context, the '"ambiguity" of the nature of the Port Authority takes form.
In fact, on one hand, the Port Authority should pursue the interest of developing traffic and the port as a whole (according to Law 84/1994), while, on the other, it operates like any other enterprise, making areas available for payment of a fee (license fee). Moreover, it is an enterprise in a dominant position.
Imagine a case where, in proceedings aimed at granting a state port concession, the Port Authority denies the concession to a party who meets the necessary requirements, without this denial being supported in fact or in law.
Well, there is no doubt that the unjustified denial of the concession represents an illegitimate obstacle to the applying port enterprise entering or also remaining in the market.
It is well known that, in certain ports, a small number of terminal operators hold concessions on vast areas and that these situations have been consolidated to the point of becoming almost unassailable.
The limited available areas are, therefore, of interest to newcomer port companies or to companies that hold lower market shares and are interested in expanding.
In this case, we maintain that should these companies receive an unjustified denial of their concession application, the Port Authority
- could be held liable for an abuse of a dominant position and, therefore,
- together with the port enterprise that benefited from such conduct, could be ordered to compensate for damages to the port enterprise that has suffered harm in terms of competition (such as exclusion from the market and / or impairment of its chances to survive in the market).
- Under another aspect, we can also mention the cases of Port Authorities having holdings in port (or non-port) enterprises.
Here art. 6, paragraph 6 of Law 84/1994 compes into consideration, under which the port authorities can not carry out, either directly or through investment in a company, port operations or closely-related activities.
The Port Authorities are exclusively allowed to establish or invest in companies carrying out “additional and instrumental activities” with respect to the institutional duties entrusted to said Authorities. This is for the purpose of developing transportation and logistics.
Having regard to the above, we should conclude that the Port Authority is prohibited from carrying out any business activity. However, the facts show that the reality of Italian ports is different.
Frequently these business activities, which are carried out by the Port Authorities, have been “justified” on the basis of art. 23, paragraph 5 of Law 84/1994.
This article states that the Port Authorities, which have been established in ports where the existing port organizations performed general services, may establish companies with other port undertakings in order to continue to provide those services. It is understood that the share held by the Port Authority in said companies shall not to be a majority share1.
Case law has also referred to art. 20, paragraph 2 of Law 84/19942, in order to rule that the decision of the Port Authority to acquire and maintain for a long period the majority in a port enterprise is legitimate.
In our opinion, also keeping in mind the principles expressed by the EU case law,
- In the case of art. 23, paragraph 5 of Law 84/1994, the choice of partners should follow public procedures, which provide for a form of comparison. In any case, the Port Authority will be required, within a reasonable time, to dispose of its units / shares;
- In the case of art. 20 paragraph 2 of Law 84/1994, the Port Authority should, by a reasonable deadline, announce a tender competition for the assignment of its units/ shares.
- It should be possible to reach similar conclusions also in the field of State aid.
Actually, if the Port Authority has financed adjustment works of a terminal to the extent that affects he terminal’s hosting ability, then the concessionaires’ competitors operating in the same market will have been harmed by reason of the State aid granted to the former.
Since they do not benefit from the same adjustment works, the competitors will be, in fact, in the condition of not being able to fight "on equal terms" with the company that has benefited from the aid.
Should it be found that the Port Authority has granted unlawful State aid, the consequences would be twofold since
- the beneficiary will be required to repay the aid it benefited from, plus interest from the date on which it was granted and, moreover,
- both the Port Authority and the beneficiary may be the recipients of a request for compensation of damages by the competitor port enterprise for the harm it suffered (loss of customers, inability to attract new customers).
Our conclusions are supported by EU case law.
The European Commission is inclined to maintain that the rules on State aid are applicable to the Port Authority.
In particular, in decision C 21/2009 (Port of Piraeus), the European Commission referred to the Court of Justice case law according to which «the provision of infrastructure facilities to third
parties against remuneration constitutes an economic activity»3.
In other words, according to the European Commission, the Port Authority has the nature of an enterprise to the extent that it makes infrastructure available to third-parties for payment of a fee4.
The above said, we know that public funding that is used to provide an infrastructure to a specific user, giving it an unfair advantage over its competitors, may constitute State aid (N 520/2003- Belgium, financial aid for the infrastructure works in the Flemish ports, N 503/2005- UK-Great Yarmouth Outer Harbour; C81/1998, formerly N 421/1997, Italy - measures provided for by Law no. 30/98 in favour of the port sector).
In this situation, the Commission believes that it is possible to rule out the existence of State aid only
- where the user of the infrastructure has been identified as a result of a selection procedure «consistent with the principles of transparency, equal treatment, non-discrimination and proportionality»5;
- the financing is compatible with the criterion of the private investor in a market economy (known as the Market Economy Investor Test).
It must be considered, in other words, if, in similar circumstances, a private investor of equal size would have made investments of the same amount6. In this sense, the Commission considers the criterion to be complied with, thus it is not to be deemed a situation of unlawful State aid, where, for example:
- The public funding does not exceed 50% of the cost of the investment7;
- The concession fee ensures the recovery of the investment and a certain level of profit8.
In other words, the Port Authority cannot fully finance a work for the benefit of a terminal and, in any case, will have to require that the beneficiary pay an increased fee as a result of the completion of the works.
It is also worth mentioning a very recent decision, whose full text has not yet been published, with which the European Commission has stated that the state aid granted by Greece in favour of the Port Authority of Piraeus, in order to create new infrastructure in the port of Piraeus, is in line with art. 107, third paragraph, letter c) of the TFEU9.
As a result of the aid, in the amount of Euro 113.9 million, two stations to accomodate passengers of cruise ships will be built in the port of Piraeus. The value of the infrastructure to be built is Euro 120 million.
Although it was found that the income that the Port Authority will achieve will not be enough to cover the costs of the investment, the European Commission considered that the aid complies with the EU rules, showing, in that way, that it recognizes the importance - for the Greek and European economy – of the project to be financed. In particular, the Commission relied on art. 107, paragraph 3 of the TFEU, which envisages that, under certain conditions, the European Commission may declare State aid for the purpose of development of the economy, or at least projects of European interest, as well as aimed at promoting culture to be compatible with EU rules.
In this case, it was found that the aid in question was strictly necessary to implement a project that will result in the development of an economic activity, with positive effects arising from the increase of cruise traffic.
Moreover, the distortions of competition that would arise between the Member States would be limited as Piraeus holds a small portion of the cruise market and, in any case, the advantage the Meditteranean cruise market would benefit from outweighs any distortions of competition.
In our opinion and pending a reading of the full text, this is a decision destined to assume a weight in the current crisis scenario, increasingly evidencing the need for infrastructure projects in order to increase the competitiveness of ports.
These interventions will have to be implemented by the government, all the more because of the size of the amounts required, and may not necessarily comply with the strict logic of private investors.
5. Having completed the excursus about the application of antitrust and State aid rules to the work of the Port Authority, we must mention that the classification of the Port Authority as non-economic public body does not invalidate the above considerations above, especially in the light of the binding EU antitrust legislation and case-law.
the range of issues examinedwhich are highly sensitive and have significant economic content for port operators and customer busineses, is currently entrusted to the attention of the Port Authority bodies, required to apply the principles mentioned above as part of their daily administrative actions, and to the case-law, which is gradually shifting towards the direction herewith commented.
We must mention, in this regard, that the application of the rules on competition to the work of the Port Authority protects the interests of the port companies in greater competition in ports and, therefore, as a result, the interests of shipping companies calling at these ports.
In short, far from being a burdensome imposition, this represents the best path for the development of traffic in our ports, in line with the primary mission of the Port Authority itself.