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Appendix B Denmark Case Study

B1. Ferry Legislation and Licensing

Domestic Ferry Services

B1.1 There are many ferry routes in Denmark. Table B1 is a summary of the domestic ferry services, carrying statistics and subsidies.

Table B1 Ferry Statistics in Denmark

* Lifeline services to islands with no other connections to the mainland

B1.2 The ferry services listed below are operated on entirely commercial conditions:

• Århus-Kalundborg
• Århus-Sjællands Odde
• Ebeltoft-Sjællands Odde
• Fanø-Esbjerg
• Hundested-Rørvig
• Hammerbakke-Orø
• Hals-Egense
• Søby-Mommark
• Allinge-Christiansø
• Gudhjem-Christiansø
• Svaneke-Christiansø

B1.3 Four of these ferry services, Århus-Kalundborg, Århus-Sjællands Odde, Ebeltoft-Sjællands Odde, and Tårs-Spodsbjerg, are a part of the political agreement regarding the bridge and tunnel connection across The Great Belt. This commits the Ministry of Transport to provide a ferry connection to the north and the south of the bridge/tunnel. The operator on Tårs-Spodsbjerg receives state subsidy until 1 May 2005, after which time it must operate commercially. If it is not possible for the operator to operate the line under commercial conditions, the Danish Ministry of Transport has to ensure the traffic connection through tenders and subsidies.

B1.4 The Rønne-Ystad line connects a Danish harbour with a Swedish harbour. This line is the main passenger connection between Bornholm and the rest of Denmark through Sweden.

Ferry operators working in the domestic market

B1.5 As one can see from the following table, the picture is pretty complex. There is a mix between private and public companies as operators and a mix between local, regional and state authorities. All lines with subsidies are tendered, but in most of the tenders there was just one bid. Some of the bids were from the municipalities' own operating company. Tables B2 to B10 show the different constellations (Kommune means municipality).

Table B2 Local Ferry Lines (Inside One Municipality), Tendered Contract with Private Operator in Denmark

Table B3 Local Ferry Lines (Inside One Municipality), Tendered Contract With the Municipality's Own Operating Company in Denmark

Table B4 Local Ferry Lines (Between Two Municipalities), Tendered Contract with Private Operator in Denmark

Table B5 Local Ferry Lines Between Two Municipalities, Tendered Contract with the Municipalities Own Operating Company in Denmark

Table B6 Cooperation Between Local and Regional Authorities, Tendered Contract with Private Operator

Table B7 Cooperation Between Local and Regional Authorities, Tendered Contract with the Cooperation's Own Operating Company

Table B8 Cooperation Between Local, Regional and State Authorities, Tendered Contract with Private Operator

Table B9 State Lines, Tendered Contract with Private Operator

Table B10 Commercial Lines

B1.6 BornholmTrafikken and Scandilines are the two ferry companies handled by the Ministry of Transport Secretariat's Section of Aviation, Road Traffic and Coasts.

B1.7 Currently, BornholmsTrafikken is a government body. From 1st May 2005, BornholmTrafikken will become a limited liability company and will be owned by the Danish Ministry of Transport.

B1.8 Scandilines AG was established in 1998 at the merger of Scandilines AS in Denmark and DFO in Germany. Scandilines AG is the biggest ferry company in the southern Baltic and operates ferry services in Denmark, between Denmark and Germany, Denmark and Sweden, Germany and Sweden and to the Baltic countries and Poland. The Danish Ministry of Transport and Deutche Bahn AG are joint owners of Scandilines AG, each owning 50% of the shares.

B1.9 Scandilines Denmark Ltd. owns a major part of the shares in Mols Linien Ltd.

Regulator

B1.10 The Danish Coastal Authority issues guidelines and authorisations with respect to legislation concerning the Danish territorial seas, harbours and coasts. In addition, it constructs and maintains national coastal protection facilities and handles corporation agreements concerning coastal protection. It also operates several state harbours and lock systems.

B1.11 The National Rail Authority (Trafikstyrelsen) is the regulator for ferry traffic in Denmark. The National Rail Authority is an authority under the Danish Ministry of Transport and is responsible for securing provision of railway and ferry transport services by tendering contracts for the operation of services determined by the government.

B1.12 The Danish Maritime Authority (Sjøfartsstyrelsen) is responsible for vessel safety

B1.13 The ferry operators do not need to have a licence or any other permission in order to operate in Danish waters.

B2. Lifeline Services

B2.1 Lifeline services in Denmark are defined as the non-commercial, publicly subsidised ferry connections between the small island and the mainland. There are 24 routes to 26 islands (they are marked with * in Table B1) that are regarded as lifeline services

B2.2 The Danish State covers the loss in the operations (set out in legislation dating from 2000) which give the inhabitants on the 26 islands free ferry transport to and from the mainland.

B2.3 The Danish Ministry of Transport is responsible for defining the services as lifeline/ PSO.

B2.4 The ferry lines to these 26 islands are the only connection between the islands and the mainland, so the objective for the lifeline services is to fulfil 'essential needs'. The free transport for islanders covers passengers, bicycles and cars which are registered to a disabled badge holder.

B2.5 The local and/or the regional authorities reimburse contracted operators for their net costs of operating the PSC services. These contracts have nothing to do with the political decision concerning free transport for islanders.

B3. PSO/ PSC Services: How They Are Operated

B3.1 The list of the operators are shown in Tables B2 to B10. Two of the operators, BornholmsTrafikken and Scandilines, are government owned.

B3.2 There had been commercial services in operation before the PSO/ PSC protection was introduced on the 26 routes. The "Mols Linien Ltd. lines"(Sjællands Odde-Ebeltoft, Kalundborg-Århus and Sjællands Odde-Århus) are more or less one package. If Mols Linien cannot operate this on a commercial basis A/S Storebælt will invite tenders for the bundled services.

B3.3 Tårs-Spodsbjerg is operated by Scandlines Danmark Ltd. on a tendered contract with A/S Storebælt, who pays the operator in accordance with the contract. In 2004, A/S Storebælt invited tenders for the line, and one of the bidding operators wanted to operate on commercial basis. From 1 ^st May 2005 onwards, the operation of the line is open and any operator can serve on the route. However, Scandlines is most likely to be the only operator on the route.

B3.4 The Fanø-Esbjerg service has previously been a state subsidised line, operated by the government body DSB Shipping. It is now commercially operated.

B3.5 The local, regional or state administrative body that invites tenders defines the minimum PSO requirement. The minimum PSO requirements are usually only related to service levels, but for the routes run by the government and the "Mols Linien-package", there are minimum requirements on the service levels, type of service and back up.

B3.6 The service levels and performance standards are defined in the contract between the administrative body (government) and the operator. Every failure is a case between these two contract parts (and their lawyers).

B3.7 Bøjden-Fynshav, Samsø-Kalundborg and the Bornholm lines are the only ones run by the national government. All the contracts are net-cost, where the operator keeps the ticket revenue.

B3.8 The Bøjden-Fynshav and Samsø-Kalundborg contracts are quite simple. The government receives limited information on carrying statistics every month and an annual statistical overview is undertaken on all fare-categories. The latter is used to make sure that the increase in the overall fee does not exceed the annual inflation rate.

B3.9 The Bornholm line contract (starts 1 ^st May 2005) is much more complicated and contains a lot of specifics that have to be monitored. BornholmsTrafikken has to carry out customer surveys that form a basis for regulating the contract payment. The contract payment is reduced if the arrival at the harbour is delayed or if a trip is cancelled. BornholmsTrafikken will provide statistics on the exact time for harbour arrivals, carrying statistics on every fare-category (as the contract contains maximum average fare on every ticket-category), results of customer surveys, etc., to mention a few of the statistics needed.

B4. PSO/ PSC Financial/Commercial Support

B4.1 Please refer to Table B1 for financial support for the contracted ferry services. On most of the small island ferry lines the contract sum is normally split between state, regional and local authorities (each 1/3). State and regional authorities pay a part of the sum to the contract holder (local authority) who pays the contract sum to the operator. Municipal/ local authorities pay contractors out of the state grant that they receive to procure public transport.

B4.2 The subsidies to 27 small islands (26 islands with ferry-connection to the mainland and Mandø with a low-tide "road" connection) come out of the state budget. In 2004, the total sum for all 27 islands was 17,2 million DKK in grants towards running costs and 11,8 million DKK in investment grants (for investments in land facilities, new ferries etc.) The running cost grants are fixed sums (based on the number of inhabitants, ferry line distance, extent of agricultural land, size of running cost deficit etc.) that are divided among the islands (or, more precisely, among the local governments in the municipality where the islands are located) in a set distribution plan. The investment grants are dependant on the investments that are made by the local governments. The state, the regional government and the local government each contribute 1/3 of the annual repayments on the local governments investments in ships and land facilities.

B4.3 For most of the small islands the level of support represents a major part of the total turnover for the ferry operator.

B4.4 There is no competition on the ferry routes to the small islands. The competition amongst domestic ferry lines seems to be very limited. There can be some competition between ferries and other means of transport (cars and air travel) on some mainland-to-mainland ferry-connections, e.g. Copenhagen-Bornholm air service and there are cars on a number of across-fjord ferry lines.

B4.5 There is no protection for the PSO operator as such, but the local authorities can reduce fares on, for example, across-fjord ferry lines, in order to attract more passengers and to change transport patterns. There are no protections or barriers to entering a market and any operator is free to establish a ferry line on a commercial basis a long as it is not in a monopolised area. Monopolised areas are concession areas where operators have the exclusive rights to operate. A few ferry lines (public service lines to the islands Ærø and Anholt) and the line Sælvig (on the island Samsø)-Hou (in Jutland) are monopolised.

B4.6 The National Rail Authority was established in July 2003 and one of their responsibilities is to regulate and control the tenders. The aim of the National Rail Authority is to make sure there is a clear definition of roles in the government regarding tenders and to make sure they get the price right for the contract. The National Rail Authority also pays the subsidies to the operators.

B4.7 As the government owns BornholmTrafikken, an independent expert panel has been appointed to assist in the tender process. This expert panel will choose the successful operator for the PSO contract.

B5. PSO Services: The Contract

B5.1 The basic structure of the contracts (Bøjden-Fynshav, Samsø-Kalundborg and the Bornholm lines) are net-cost contracts. The government secures through the contract a reasonable fare level, and a reasonable proportion between demand and supply (passenger numbers, tonnage and frequency). We understand that the locally administered operator contracts are identical but on a smaller scale. Some of the small island lines are operated by the local governments in-house. These contracts may be gross-cost contracts. Most of the across-fjord ferry traffic is provided by government operators as well.

B5.2 It is the operator's responsibility to secure agreements with the harbours. Most harbours are owned by the local authorities, but some are owned by the regional authorities and a few are private.

B5.3 The major risks in running ferry services appears to be the weather. In addition, the following are prevalent risks:

• oil-prices: which greatly affect operation costs;
• prices for using the harbours - as there is some political focus on rebuilding harbour facilities in order to secure passengers and ships against terror-attacks (operation costs);
• security arrangements on the ships with the same purpose - which affects operation costs; and
• a proposal from the government for a significant reduction in the fares for crossing the Great Belt bridge/tunnel. Such a reduction in fares could change the transport patterns in the Great Belt region and reduce the revenues for the operators on the Tårs-Spodsbjerg line and the Mols Linien line package. (However, there is a possibility that the government will cover the revenue losses).

B6. The Tendering Process

B6.1 The contracts are for 5 years. The start dates of contract vary. The small island contracts all started on 1 ^st January 2001. The Bøjden-Fynshav contract started on 1 ^st May 2003. Samsø-Kalundborg and Sælvig-Hou lines started on 1 ^st December 2003. The Tårs-Spodsbjerg contract started 1 ^st April 2000.

B6.2 The contract for Bornholm is also for 5 years, with the first one due to start on 1 ^st May 2005. The contract will expire 30 ^th April 2010.

B6.3 The tender for the Bornholm Public Services Contract was publicised in the Official Journal of the EU in May 2003. Only one operator, BornholmsTrafikken, submitted an application and in June 2004 it was announced that the National Rail Authority would accept the offer from BornholmsTrafikken.

B6.4 The Danish tendered ferry services market is small and there is not much competition. For example: Rønne-Ystad and Rønne-Køge (one tender): one bidder. Bøjden-Fynshav: one bidder. Samsø-Kalundborg: two bidders. Spodsbjerg-Tårs: three bidders. 24 ferry lines to 26 small islands: 24 tenders, 25 bidders.

B6.5 Almost all of the bidders were incumbent operators on the routes. Until 1 ^st May 2005, BornholmsTrafikken, a state government body, operates the Bornholm lines. It participated in the tender and according to their bid, the company will be restructured and will become a limited liability company. Therefore, in theory, the line will be operated by a "new" operator.

B6.6 There are not yet any add-ons to existing services but there might be a couple of supplements to the contract with BornholmsTrafikken Ltd. The European Commission would have to give the green light if any supplements were to be made.

B7. EU Maritime Cabotage Rules

B7.1 Danish ferry services are compliant with Council Regulation ( EEC 3577/92) for maritime cabotage.

B7.2 The EU notified the Danish Government in July 1998 that their legislation for ferries and the option to give exclusivity on certain routes for operators was against the EU Regulation. As a result a new law for ferry services was submitted in June 1999.

B7.3 The Commission initiated infraction proceedings against Denmark in March 2000 on the basis that it suspected that the aid granted in respect of 2 schemes to the island of Samsø was unlawful. In November 2000 the Danish government asked the European Council to declare the aid compatible with the Treaty.

B7.4 The European Council did so but the Danish Government had, by that point, put in place new arrangements which were in line with the EU rules. The new law was still not in compliance with the EU regulations after heavy correspondence with the EU. The main changes in the legislation for ferries are that the government is no longer allowed to run their own ferry services without having a tender competition.

B7.5 The announcement of the tender will have to be made in full in the EU tender publication and it is no longer adequate to provide a link to a homepage on the Internet with the full details.

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