feport - ports services directives

7/30/2019 FEPORT - Ports Services Directives

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Feport position on proposed port services directiveJune 13 2001

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EXECUTIVE SUMMARY

FEPORT supports the aim of the directive proposal, i.e. to create a level playing field for

European ports, but is disappointed that the Commission did not focus more on competition

between ports. We are convinced that without clear rules for financing of ports, i.e. state aidguidelines, set on an EU level, a level playing field will never be reached.

FEPORT thinks that the key principles of good governance and neutrality of port authorities are

sound and should be the guiding principles in the directive proposal. The rules should

furthermore apply to all port services within and outside the port area, independent of the size of

the port. The main objective should be to keep the rules for ports at EU level simple so theyeasily can be applied to all ports.

The current directive proposal, however, contains many unclarities due to the wish to preserve

subsidiarity on the one hand (many key-concepts have not been defined) and too strict andinflexible rules on the other hand to achieve legal certainty, which may lead to bureaucracy and

may create a culture of systematic legal disputes.

Regarding article 7.2 of the directive proposal to have at least 2 operators per cargo category ineach port in case of limitations, FEPORT is of the opinion that it should be left to the port

authority to decide how many operators per port are needed, taking into account relevant EU

environmental legislation as well as available space and /or capacity in the port and the overallefficiency of the port operations. In situations of abuse of dominant position, the competitionrules should apply.

With respect to the requirement of article 7 to set up separate authorities where port authorities

are being judge and party at the same time, FEPORT is of the opinion that no additionalcompetent authority is needed as long as port operators have direct access to and can complain

to existing competent national authorities (such as national anti-trust organisations) and asufficient level of transparency will be achieved by the other provisions of the proposal.

As far as the duration of concessions in article 9 is concerned, FEPORT strongly holds the view

that the duration of concessions should be decided between the contracting parties in line withthe principle of subsidiarity.

With respect to self-handling, FEPORT is of the opinion that criteria for selfhandlers should be

equal to those for providers of the same or a comparable port service. Furthermore, self-handlingshould only take place on board the ship and should be undertaken by regular crew members

only.


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On transitional measures, FEPORT is of the opinion that all existing contracts should remain in

force unchanged. Not taking account of the legitimate expectations of terminal operators with an

existing contract will lead to situations where the investments undertaken will have to be earnedback in a shorter period, consequently causing prices to rise. In such cases compensation by thenew operator would be indispensable.

For new contracts the rules set out in this paper should be taken into account.

The proposals in the Directive relating to cargo handling are therefore not acceptable in theirpresent form and should be the subject of further study. Failing that, major amendments are

required.


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FEPORT Federation of European Private Port Operators

POSITION ON THE DIRECTIVE PROPOSAL ON MARKET ACCESS TO PORT SERVICES

On February 13 2001, the Commission adopted the port package, which takes the form of aCommunication and consists of a directive proposal on market access to port services, the

inventory report on public financing and charging in ports and an interpretative summary of

Community rules on transparency of public money flows into and within seaports and of state

aids to seaports.

This paper gives the views of FEPORT with respect to the proposed directive on market access to

port services and, where necessary, slightly touches upon the communication and inventoryreport.

First, general comments will be given relating to the basic aims of the proposed directive (key-principles, level playing field, market access and ownership and legal certainty and subsidiarity),

which will be followed by some specific comments relating to five main issues of the proposal(duration of concessions, selfhandling, the principle of having at least 2 operators per port, the

setting up of a separate competent authority and transitional measures).

GENERAL COMMENTS

Key-principlesEven though a number of the provisions contained in the directive proposal may be controversial,

FEPORT is convinced that the key-principles in it are sound.

Good governance

According to the principle of "good governance", Member States will have to ensure full

transparency of all procedures in relation to the provision of port services, as well as the

availibility of appeal procedures, including a judicial review. The appropriateness of this

principle cannot be contested.

Neutrality of port authoritiesNeutrality of port authorities towards port users is another basic principle of the proposal. It has

been developed by the Commission in earlier individual competition cases, where it was linked to

the 'essential facilities' theory and the right of 'third party access'.

In an earlier response to the Commissions working document in preparation of this directive

proposal, FEPORT drew attention to the problems that may arise where a port authority acts both

as judge and interested party when allocating sites to terminal operators. This is discussed morefully below.

Furthermore, FEPORT pointed to the importance of public and private service providersoperating under equal conditions, without distortions through public funding of or exclusive

rights for particular terminal operators.


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Level playing fieldFrom the discussion on the Commissions Green Paper on Sea Ports and Maritime Infrastructure,

both within the industry as well as in Council and Parliament, it followed that measures oncompetition between ports (state aid guidelines) were thought to be as important as measures oncompetition within ports (framework on access to the market of port services).

FEPORT regularly pointed to the importance of having a clear set of state aid guidelines to create

a level playing field between ports and port operators, especially since such a level playing fieldcurrently does not exist. Different ways of financing port investment projects, maintenance of

port access and facilities, differences in social and fiscal costs and different ways ofimplementing and maintaining EU rules and regulations are principal distortive factors between

the EU seaports.As already pointed out in its response to the Green Paper, FEPORT is of the opinion that

competition between seaports or between groups of seaports should take place on their respectivestrengths and weaknesses, such as quality of service, efficiency, charges and geographicallocation.

Consequently, FEPORT is disappointed that the Commission did not make such guidelines and in

its Communication merely touched the issue of state aid and rejected the idea of guidelines with

unconvincing and incorrect arguments.

In the proposed port package, the Commission clearly focuses on competition within ports.

Even though the directive proposal states that it aims at creating a level playing field, it isquestionable whether it can be achieved by the proposed framework.

It is a fact that competition no longer takes place solely within a given port. Globalisation and the

completion of the internal market have created a situation whereby several European seaportsnow serve one economic hinterland. Focussing on competition within ports is therefore not very

realistic.

Furthermore, one should be aware of the fact that globalisation developments have taken place inthe shipping industry as well. The globalisation process in that respect has led to an increased

bargaining power of major shipping lines and alliances, which participate more and more in cargohandling operations themselves by controlling terminal operators and by establishing single-user

(dedicated) liner terminals.These developments have considerably intensified the competitive pressure on the terminal

operator.

With respect to the Commissions opinion, according to its report on the inventoryof financing and charging practices, that potential operators, either public or private, whishing to

enter the market in order to provide port services still face various obstacles FEPORT is of theopinion that this is debatable. The nature, frequency and importance of those obstacles is not

elucidated, evidenced nor illustrated by the Commission. Furthermore, in our opinion in practicethere do not seem to be many complaints or disputes that point in this direction, especially not in

the cargo handling sector. Restrictions that still exist here and there often relate to certain specificlabour practices.


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Consequently, FEPORT is of the opinion that the Commission could at least be invited to

demonstrate that rules on establishment in the port sector are particularly and systematically

obscure, that this has entailed real obstructions to entry to the market for port services, and thatthis situation requires legislation at EU level.With respect to existing restrictive labour practices, FEPORT in principle welcomes the inclusion

of article 6.5. in the directive proposal. This article could and should contribute to an organisationof dock labour as required by modern standards in port activities. Wherever applicable, parties

concerned should be encouraged to make optimal use of the already existing possibilities.

Finally, in order not to obstruct the creation of a level playing field it would be better not to set athreshold. The introduction of a cargo throughput threshold in a European legal framework for

ports presents some dangers.

First, a threshold based on tonnage will result in distortions, as the economic significance of onetonne of general cargo cannot be compared to that of one tonne of dry or liquid bulk. In thissense, a tonnage threshold does not seem very pertinent.

Moreover, a global port throughput threshold may not be relevant at all in cases where inter-port

competition involves flows of certain types of traffic or cargo only.

Second, it may be the case that a fierce competitive struggle involves a relatively small port on

the one hand and a relatively large port on the other. It is not unthinkable in such a situation that

the larger port, being subject to European legislation, could be put at a competitive disadvantagevis--vis the smaller port, whose size is under the threshold for applicability of that same

legislation. Consequently, a European framework could actually distort competition.

A third danger is that national authorities may be inspired to slice up port systems into smaller

autonomous ports in order to stay under the threshold.

A fourth observation is that, in the course of time, ports may fluctuate to the extent that

sometimes the port remains under the threshold and at other times the threshold is exceed.How, for example, should one treat a port that reaches the threshold only twice (and

intermittently) over a period of five years? The introduction of a three year's-average in theproposed Directive is only a partial solution.

A fifth remark concerns the fact that a young or recently extended port presenting itself as a new

player on the market may remain under the threshold in this initial phase. However, it is duringthis phase that the port will organise its services, and that is precisely when European legislation

on access to the provision of port services should serve its purpose and be applied.

FEPORT is therefore of the opinion that an equal system would have to apply to all Europeanports. Such a system would have to apply to services both in- and outside the port area.


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Given the above, FEPORT is still convinced that the best and most simple way to reach a level

playing field is by making a clear set of state aid guidelines and by ensuring transparency in the

financial relations between the state, port authorities and port operators, rather than attempting toregulate market access to port services, which is already largely protected by existing legislationon the abuse of dominant positions.

Market access and ownershipThe effect of some of the provisions in the Directive could be that in some cases owners of land,buildings or equipment will be required to grant access to their facilities to third parties. Indeed

the circumstance could arise in which the holder of a lease would be forced to surrender theoutstanding portion of his lease to another party as a result of a tendering operation as envisaged

in Article 16 of the Directive.This raises the question of whether the measures proposed are proportional to their need, noting

in particular the provisions in the Treaty and the Convention on Human Rights about rights ofproperty ownership.

With respect to the compatibility of the principle of market access and ownership, reference

should be made to the essential facilities doctrine on which this article seems to be based. The

European Court of Justice restricts third party access to situations where the competitor on the

downstream market finds no economically realistic alternative. Applied to ports this would mean

that e.g. a cargo handling company is not entitled to access to a port infrastructure as long as

another port is already open and available.Article 1, however, broadened the scope of third party access to port facilities to any European

port (provided the threshold is attained). This definitely goes too far and should be amended to

stay in line with the essential facilities doctrine as developed by the Court.

Furthermore, promoting third party access to the market of cargo handling services may conflict

with property rights and with promotion of new investments and R & D activities. In the longrun, third party access may curb investments and the provision of efficient facilities. Moreover,

competitors will not feel incited to erect competing facilities of their own.

Finally, third party access may not benefit end users at all, as access fees paid by the newcompetitor will be passed onto them. To conclude, third party access may not be the proper way

to enhance competition in markets where the provision of facilities depends on privateinvestment.

In other words, third party access can only be justified where the monopolistic provider ofservices is funded by government money, or, where privately funded, where the facility has been

developed in a non-competitive environment.

Legal certainty and subsidiarityThe directive proposal furthermore seeks to enhance legal certainty as to the conditions for access

to the market and selection procedures.


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At the same time the Commission seeks to stay in conformity with the principle of subsidiarity.

According to the Commission proposal the heterogeneous nature of the port services and the

diversity of the ports (in terms of status, ownership, size, function and geographicalcharacteristics) remain important factors. It requires that appropriate account be taken of eachports specificity and its relevance for the port service providers.

It is, however, questionable whether the Commission did strike the right balance between

achieving legal certainty and maintaining subsidiarity.

The current proposal from our point of view contains many unclarities due to the wish to preservesubsidiarity on the one hand (for instance many key-concepts have not been defined) and too

strict and inflexible rules on the other hand to achieve legal certainty, which may lead tobureaucracy and may create a culture of systematic legal disputes.

The result may well be that while the lack of definitions will create new disparities and increaselegal uncertainty, which is contrary to the aim to create a level playing field, the inflexibility of

some substantial rules contained in it lacks justification and endangers subsidiarity and local

autonomy of ports. So instead of creating a level playing field, this may lead to severe distortions

of competition and thus have a counterproductive effect.

It can be expected that much more bureaucracy will be created and a very uncertain situation for

the port industry will emerge, which will have a negative impact on the level of investments andconsequently on safety and efficiency.

CONCLUSIONS AND RECOMMENDATIONS

To conclude, FEPORT is of the opinion that the directive proposal increases uncertainty, is notclear on whether owned facilities can be expropriated, ignores the regulating role of the market,

discourages investment in infrastructure and superstructure towards the end of lease terms(because there is no certainty of extension) and adds to uncertainty in terms of being vague in its

drafting in general. In other words the directive proposal does not add to the effectiveness ofports, which is its main aim.

The proposals in the Directive relating to cargo handling are not acceptable in their present form

and should be the subject of further study. Failing that, major amendments are required.The key-principles on good governance and neutrality of port authorities, as mentioned above,

should form the guiding principles when amending the directive proposal and should apply to allport services within and outside the port area, independent of the size of the port.

The following more specific comments should in that respect be taken into account as well.Finally, article 6.5 on the right to use personnel of its own choice should remain as it is.


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SPECIFIC COMMENTS

First of all, the concept of limitations has to be discussed. This concept is one of the key conceptsin this proposal and it is unclear from the directive proposal how this concept should be appliedby the respective port authorities.

FEPORT believes that, by the nature of things, every port is limited in available space orcapacity. The circumstance that in a given port one possible terminal site is for the moment

unoccupied, may not be a sufficient reason to conclude that there are no space or capacityconstraints as one has to take into account the technical and economic characteristics of the site in

question as well. It may well be that notwithstanding the availibility of one or two terminal sites,these sites are not suited to handle e.g. containers or dry bulk, given the limited land surface or

the limited draught at the quay.This would thus lead to the situation where all European ports are caught by the strict regime on

limitations, selection procedure, duration of authorisations and on transitional measures, whichwould certainly not be proportionate, especially not for cargo handling. In most Europeanseaports, restrictions have gradually been removed from the market of cargo handling services,

which has become more commercially oriented with increasing participation of the private sector.

FEPORT is therefore of the opinion that this concept should be omitted from the proposal, since

it is very vague and leaves too much space for interpretations leading to distortions of

competition. The rules in the directive proposal should be applicable to all ports independent of

the fact whether there are space and/or capacity constraints.

Competent authorities (article 5, 7 and 8)

Where the managing body of the port provides, or wishes to provide, port services in

competition with other service providers, it must be treated like any other competitor. This

requires that the managing body must not be involved in the selection procedure of service

providers, must not discriminate, in its function as managing body of the port, between service

providers in which it holds an interest and other service providers and must, in particular, separate

its port services accounts from the accounts of its other activities.

FEPORT recognises that problems may arise where a port authority acts both as judge and

interested party when allocating sites to terminal operators.

Where port authorities are providing services themselves or through a subsidiary, the questionmay be raised, however, whether the system imposed by the Directive should not be restricted to

situations where the port authority is providing competing or similar services. When the portauthority is for instance involved in towage, this alone would not be a valid reason for depriving

the port authority of its powers as to the authorisation and selection of cargo handling companies.In its present wording, the proposed Directive would lead to such a result. The mention of the

similarity concept provides no solution as it is concerned only with the activities of the competentauthority.


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Further, the designation of a "competent authority" apart from the port authority is in

contradiction with the local autonomy of port authorities. Local port authorities (whatever their

legal regime or organisational structure) enjoy large commercial autonomy and flexibility, andhave developed considerable know-how in daily contacts with the private port and shippingindustries. Local and commercial autonomy is the basis of the success of the best-performing

European ports. Creation of a second "competent authority" deciding on limitations and theselection of port service providers would be contrary to this long-standing tradition and endanger

sound assessment of the real needs of the port. It is to be feared that a "competent authority"would mean a return to bureaucratic port administration regimes far away from daily port

practice, or, otherwise, that it would result in the creation of a second or parallel port authority,disturbing an integrated and co-ordinated long-term port policy.

FEPORT is therefore of the opinion that since these issues are normally very well solved on a

case by case basis by the national anti-trust organisation, which port operators should have directaccess to, and provided that a sufficient level of transparency will be achieved by the otherprovisions of the proposal, no additional separate authority is needed. This also applies to certain

Member States, where some ports are organised on a basis of vertical integration, whereby the

port authority provides some or all of the port services. FEPORT sees no reason for these

arrangements to be disturbed: here again any complaints could be referred to the competent

national authorities.

At least two service providers for each category of cargo (article 7)

The provision states that in case of constraints relating to available space or capacity, and as longas there are no exceptional circumstances, the competent authority should authorise at least two

service providers for each category of cargo.

As mentioned earlier, port competition these days is no longer restricted to competition within a

given port or range of neighbouring ports. Port operators are therefore no longer only competing

with operators in the same port or in neighbouring ports.

The basis for guaranteeing market access should therefore be the relevant market, i.e. this shouldbe based on a definition of the market related to the sector of the companies in competition, and

not restricted to the individual port. The relevant market covers a larger area than the area within

a port.

FEPORT is of the opinion that the proposed stipulation furthermore conflicts with the objective

of the Directive to reduce the costs of service provision in seaports. In many cases, two providersof the same service in one port would not be capable of offering low-cost, innovative services.

Particularly in smaller ports, it is often not possible to increase the number of service providers.These providers are in a situation of inter-port competition and this induces them to improve their

performance.


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Furthermore, the requirement to allow access to at least two service providers for each category

of cargo would lead to the expansion of existing ports and to an inefficient and uneconomic use

of available space and facilities (see above). Such expansion would involve considerable costwhich would need to be passed on to the port user in the long run.Moreover, such an expansion could have harmful environmental consequences and could well be

limited by the Birds and Habitatsdirective.Finally, given the fact that this requirement only applies when there are capacity and/or space

constraints this seems to even increase the space and/or capacity constraints.

Given the above, FEPORT is of the opinion that it should be left to the port authority to decidehow many operators per port are needed, taking into account relevant EU environmental

legislation as well as available space and/or capacity in the port and the overall efficiency of theport operations.

In situations of dominant positions and abuse thereof, the competition rules are well equipped tohandle these cases.

Duration of concessions (article 9)

Article 9 of the directive proposal sets durations for concessions ranging from 5 to 25 years,

depending on whether significant or insignificant investments are made and for significant

investments whether these investments are in moveable or immoveable assets.

The proposed durations are considerably less than what is usual in Member States (e.g. French

Act of 1994 on "droits rels administratifs", providing for maximum duration of 70 years;compare Flemish Ports Decree, adopted on advice of Ports Commission: maximum of 99 years)and what is stipulated for fiscal depreciation purposes, so there would be an increase in cost by

shortening of the write-off periods, with corresponding impact on pricing.There would also be a need for reserves to be set aside for demolition obligations in a

correspondingly reduced period.

For investments in personnel, the fiscal depreciation and the impact of shortening the write-offperiods have to be considered as well.

Furthermore, port employees are usually highly skilled personnel. In order to become highlyskilled, the terminal operator has to train its employees, also during the concession period. Such

investments will no longer take place a few years before the end of the concession, not knowingwhat will happen in the future, which may have an impact on efficiency and safety.

Next to that, one should bear in mind that in the last 4 or 5 years before the end of the concession

period, given the uncertainty as to whether the company will be able to continue its business, no

employee will accept a job for such a short period, with such an uncertain future.

The latter also applies to clients. They will not be willing to commit to a given terminal when

they do not know whether the company will be able to continue in the near future.


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The system proposed in the Directive further assumes that the level and the "(in)significance" of

investments are assessed before the granting of the authorisation. In practice however, it happens

that a stevedoring company after a few years decides on additional investments.The question arises whether this should not have repercussions on the duration of theauthorisation. In some ports, additional investments will incite the port authority to grant an

extension.

In landlord ports, rights of renewal and/or extension are often granted to terminal operators, inorder to develop customer relations and encourage new investments. This practice seems to

conflict with the proposed Directive, which imposes selection procedures and thus makesrelations between the port and its service providers unstable. Moreover, authorisations are in

practice already at this stage of a rather precarious nature as the port authority in many countriesis entitled to terminate them in the general interest. In recent law, a trend is discernable toward

greater stability of port terminal contracts, in order to enhance bankability of investments (e.g.French Act on "droits rels administratifs" of 1994). The proposed Directive seems to go intoexactly the opposite direction in that it limits duration and precludes renewal and extension

clauses.

Given the above, FEPORT is of the opinion that the option for port authorities to allow an

extension of the contract should remain possible, since they are essential to encourage

investments during the contract period, if not compensation by the new operator would be

indispensable.

The proposed rules would thus constitute serious obstacles to investment during the term of the

authorisation. Required modernisation measures would not be taken towards the end of the

duration of the authorisation, with corresponding impact on the competitiveness of the companiesand on safety at work. The same applies to investments in personnel, as mentioned above.

FEPORT therefore strongly holds the view that the duration of concessions should be decidedupon on a case by case basis between the contracting parties e.g. the terminal operator and the

respective competent authority and be assessed on the basis of the investments undertaken duringthe concession period. This is in line with the subsidiarity principle and confirms the principal

regulating role of the market.

Selfhandling (article 4 and 11)

"Self-handling" has been defined as "a situation in which a port user provides for itself one ormore categories of port services and where normally no contract of any description with a third

party is concluded for the provision of such services".

According to the proposal, self-handling may be subject to an authorisation for which the criteriamust not be stricter than those applying to providers of the same or a comparable port service.


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First of all, it is unclear what is meant by a "port user". The concept of self-handling in itself may

refer both to a shipping company using its own pilots and mooringmen, and to an importer or

exporter of goods organising its own cargo handling services. Due to the lack of a definition of"port user", discussions may arise as to which situations are covered by the Directive.FEPORT is of the opinion that port user in the case of cargo handling should only refer to the

shipping companies in order not to be detrimental to safety.Finally, as a consequence of the text of the proposal, criteria for selfhandlers may be less strict

than for other providers of the same or a comparable port service. The Commission has not givenclear reasons why professional qualifications, the financial situation, sufficient insurance cover,

maritime safety or safety of installations, equipment and persons (the only authorisation criteriaallowed under article 6.2) could be applied in a less strict way for self-handlers.

FEPORT is of the opinion that criteria for self-handlers should be equal to those for providers of

the same or a comparable port service in order to avoid distortion of competition.Furthermore, selfhandling should only take place on board the ship and should be undertaken byregular crew-members only.

Finally, selfhandling should not harm the service provided by the terminal operator or hamper the

overall efficiency of operations, nor should it involve any capital equipment belonging to the

terminal operator.

Should these conditions not be set for selfhandlers, the safety on and insurability of the terminal

could be endangered.

Transitional measures (article 16)

This provision gives transitional measures as from the date of transposition, depending on what

kind of procedure was followed for allocation of the concession and on the type and level of

investments.

The proposal provides that, where "the number of providers of port services in a port is not

limited by constraints relating to available space or capacity or maritime safety", existing

authorisations may remain in force unchanged until such time as the number becomes limited.

Where the number of providers of port services in a port is limited, the following applies.

Where the authorisation was not granted in conformity with the rules of the Directive but waspreceded by a public tender or an equivalent procedure, the maximum duration of the existingauthorisation will be 10 or 25 years, depending on the type and level of investment.

Where an existing authorisation was not granted in conformity with the rules of the Directive, and

depending on the type and level of investments, a new authoriation procedure must be carried outbetween 2 to 8 years of the date of transposition of the Directive, depending on the type and level

of investment.


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FEPORT is of the opinion that all existing contracts should remain in force unchanged,

independent of the fact whether there are space and/or capacity constraints and what the

procedure was by which the contracts were allocated. Not taking account of the legitimateexpectations of terminal operators with an existing contract will lead to situations where theinvestments undertaken will have to be earned back in a shorter period, consequently causing

prices to rise. In such cases compensation by the new operator would be indispensable.

Furthermore, required modernisation measures would not be taken once it is unclear what themaximum duration of the existing concession will be, with corresponding impact on the

competitiveness of the companies and on safety at work. The same applies to investments inpersonnel, as mentioned above.

Next to that, this will place an enormous burden of bureaucracy on both port authorities and portservice providers, especially in bigger ports, with probably no result or added value whatsoever.

For new contracts the rules set out in this paper should be taken into account.

feport - ports services directives

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