Commission answer to question on the proposed tendering of CalMac ferry services
The Commission (M. Barrot) have answered a question by Alyn Smith MEP on the proposed tendering of CalMac ferry services. The full question and answer is included at the end of this Note, but the core of the answer to the question is where M. Barrot states
"If the competent authority chooses a public service contract, awarded in the present case after a public tender, this contract can foresee a subsidy compensating for the cost of such services. If this subsidy complies with the four criteria laid down by the Court of Justice in its judgment in the case of Altmark Trans GmbH, then this subsidy would not constitute state aid".
As part of the consultation process on the proposed Calmac tender I submitted a proposal which I argued would meet the criteria set out in the Altmark case without the need for tendering. The then minister of transport Nicol Stephen assured the Local Government and Transport Commitee that I (along with academic colleagues Bennett and Findlay) would be given an opportunity to discuss our views on these matters with the Scottish Executive. We were given no such invitations, instead the report from the Executive on our contributions came out just before the debate on the Calmac tender several months larer, in my case dismissing my proposal where it said;
"(F) Professor Kay's 5 part proposal which he suggests would meet the 4 Altmark criteria: ... As set out at (B) Altmark (paragraphs 7 to 10 above) the Altmark criteria are not applicable to ferry services which fall within the scope of the Maritime Cabotage Regulation". Annex A: Alternatives to tendering which have been considered by the Scottish Executive
But as Barrot's answer confirms, the Executive's position was completely wrong. The Altmark criteria are not only applicable to ferry services which fall within the scope of the Maritime Cabotage Regulation, if you want to subsidise, they are central to the process.
And as I argued there would have been no need to tender Calmac services if a proper case had been prepared under the Altmark guidelines. My proposal could have been taken to the Commission and it would have been testable against Altmark.
But the Executive argued (wrongly) that Altmark was not applicable here. So that opportunity was killed off.
The Executive then went on in their Annex A to produce other reasons why my proposal would not work "even if the Altmark criteria were applicable" - which I think is indicative of the fact that they knew they were on shaky grounds when they claimed Altmark was not applicable. Needless to say, the other reasons they gave were also spurious.
The next point that follows from Barrots answer is to check what the Altmark criteria actually are. The first is that
"the recipient undertaking is actually required to discharge public service obligations and those obligations have been clearly defined"
And as the Scottsih Executive noted in 2000 when Sarah Boyack was the
minister and the issue first came to public notice, "A Public
Service Obligation is, any obligation imposed upon a carrier to ensure
the provision of a service satisfying fixed standards of continuity, regularity,
capacity and pricing, which standards the carrier would not assume if
it were solely considering economic interest". (SE
There are restrictions on fares and levels of service in the Draft Invitation to Tender for the Calmac route, but there are no indications these are PSOs, and indeed they cannot be seen as PSOs since as I have noted separately the present minister has already said in the context of this tender that Public Service Obligations (PSOs) would not provide that certainty and security of service nor deliver on the Executives key policy objectives. Consequently there is no need to consider, nor do we intend to consider, issues arising in relation to PSOs. Consistent with this, in the the whole CalMac Draft Invitation to Tender the only mention of PSO or public service obligation in its 198 pages is at the start on page 3 where PSO is defined as public service obligation.
So none of the restrictions in the PSC (tender) for the Calmac contract can be seen as PSOs since the Executive has said that they see no need to consider, nor do they intend to consider, issues arising in relation to PSOs in that context.
So two main conclusions: (1) the Executive have rejected imposing PSOs, which are clearly essential under the 1992 Maritime Regulation and State Aid rules if you want to subsidise (2) they have also rejected Altmark as being irrelevant to tendering of lifeline ferry services, while the Commission have now confirmed (as I argued) that not only is Altmark relevant, it is in fact central to the whole process if you want to subsidise,
At least the Executive's rejections of these issues have a bizarre consistency.
The result is that the Executive's whole approach to tendering lifeline ferry services may be judged hopelessly compromised.and it looks like the Executive have created totally unnecessary hostages to possible legal challenges, for example by disgruntled operators.
The deeper issue is the potential threat to essential services that this may have created for vulnerable and dependent communities through the Executive apparently failing to understand and adhere to the basic principles of EC law in this area.
The full written question from Alyn Smith MEP and answer from Mr Barrot for the Commission
WRITTEN QUESTION E-3818/06
by Alyn Smith (Verts/ALE)
to the Commission
Subject: Tendering for Clyde and Hebrides ferry services
On 14 September 2005, and after initially voting against them on 8 December 2004, the Scottish Parliament decided to accept proposals from the Scottish Executive to put the provision of Clyde and Hebrides ferry services out to tender in order, the Executive claimed, to bring the provision of subsidies to such services in line with the requirements of EU law, in particular regulations on maritime cabotage and State aid.
In a written answer (Scottish Parliament, 13 June 2006) the Scottish Executive stated that for certain ferry services, including the Clyde and Hebrides network, the major part of which is to be tendered as a single bundle, 'the Executive is tendering on the basis of Public Services Contracts (PSCs) .... Public Service Obligations (PSOs) would not provide the certainty and security of service nor deliver on the Executive's key policy objectives. Consequently there is no need to consider, nor do we intend to consider, issues arising in relation to PSOs'.
In the light of this statement, can the Commission indicate whether the Scottish Executive will still be able to subsidise these ferry services under Regulation (EEC) No 3577/92 and EC State aid law, and will the Commission insist that a PSO or PSOs will still be required?
 OJ L 364, 12.12.1992, p. 7.
Answer given by Mr Barrot
on behalf of the Commission
It is for Member States (or their competent local authorities) to define public services and to choose the appropriate legal instruments to ensure the provision of such services, provided that the definition of such services and the design of such instruments comply with EC law. In particular, such services shall respond to a need not already satisfied spontaneously by the market, and such instruments shall be transparent, non discriminatory, and comply with the state aid provisions of the EC Treaty and with the relevant sectoral legislation (in this case, in particular, the regulation on maritime cabotage and its interpreting communication). The Commission, therefore, does not insist on the use of one or another specific instrument (PSC or PSO) but will check that any measure taken complies with EC law.
If the competent authority chooses a public service contract, awarded in the present case after a public tender, this contract can foresee a subsidy compensating for the cost of such services. If this subsidy complies with the four criteria laid down by the Court of Justice in its judgment in the case of Altmark Trans GmbH, then this subsidy would not constitute state aid. If this is not the case, this subsidy could be considered by the Commission to constitute compatible state aid if it complies with the applicable legislation and principles, as recalled in particular in the Commission Decision 2005/842/EC of 28 November 2005 or in the Community Framework for state aid in the form of public service compensation. In any case, the subsidy would have to be limited to the compensation of the public service costs, transparent and based on a clear pre-existing definition of the services.
 2005/842/EC: 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 service compensation granted to certain undertakings entrusted with the operation of services of general economic interest , OJ L (2005) 312
 OJ C (2005) 297
January 12th 2007