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Appendix F Greece Case Study

F1. Ferry Legislation and Licensing

Domestic ferry services

F1.1 Greek coastal shipping ranks among the largest in Europe. It involves the movement of passengers and cargo within a system of mainland-to-island, island-to-island, and mainland-to-mainland connections. Domestic ferries ply the waters of the Greek seas, linking the economies of the islands and the mainland. The actual number of islands is close to 10,000. About 114 Greek islands are inhabited, 94 of which are served by frequent ferries services. There are some 144 ports, some 40 of which are on the mainland, and about a thousand ferry links are made a day.

F1.2 Piraeus, the main port for Athens, is the centre of the ferry network and forms the central hub of the ferry system. Thessaloniki in the north, Patras in the Peloponnese, and Rafina and Lavrio near Athens are the other large mainland ports. Crete is Greece's largest island, with eight ports.

F1.3 The Aegean Islands, which compose the majority of the islands, are rather compact. Rhodes, to the southeast and nestled within sight of the Turkish coast, is 260 nautical miles from Piraeus.

F1.4 The Aegean Islands are conventionally grouped into the Saronic, Cyclades, Dodecanese, Sporades and Northern Aegean. Crete is a major ferry destination with several ports. The Ionian Islands lie to the west of the Greek mainland.

F1.5 Some 40 million passengers are carried annually, about half of them by roll-on roll-off services. Demand for ferry services is highly seasonal, with August accounting for some 23% of total annual passengers, and February for only 2%.

F1.6 Some routes have much higher demand for travel than others. Indicatively, in 1990, some 20% of all traffic was related to the ports at Piraeus, Mykonos, Santorini and Crete. The heaviest traffic is generated within the short-distance routes of the Argosaronikos Bay near Piraeus, where passenger movements are more than double that of the long-haul Piraeus-Crete lines.

F1.7 This disparity is caused by differences in tourism at the island destinations but also by differences in the number of permanent residents on the islands. Some islands have fewer than 100 residents; Crete has half a million. Another dimension relative to the demand for ferry services is the existence (or the lack) of airports. The largest islands have airports that compete with the ports.

F1.8 Recent carrying statistics are not available to the Greek Ministry of Mercantile Marine (the YEN), as the Ministry does not collect data on commercial services (especially following compliance with the EU regulations). However, older statistics indicate that, with few exceptions over short periods of temporary decline, coastal passenger traffic grew steadily in the 70's, 80's and 90's. Vehicle traffic has also grown, often more steeply than passenger traffic. The introduction of large passenger/car ferries, which managed to displace the traditional passenger-only steamers of the post-World War II era, has been the main reason for the generation of such a demand. Indeed, the evolution from traditional passenger-only ships to passenger/car ferries is an important change in the nature of coastal shipping in Greece in recent years. This change has gradually developed over the course of the last 30 years and has been spurred to a significant extent by rapid island economic growth and by significant infrastructure improvements in island ports in the late 1960s and early 1970s.

F1.9 Greece, however, has recently been affected by the worldwide drop in tourism, which has had a knock-on effect on coastal shipping. Passenger movement in the Greek ferry network dropped 25% between 2001 and 2002.

Ferry operators in the domestic market

F1.10 During the 90's, the sector consolidated, coalescing around three corporate groups, with a fringe of smaller companies:

• Minoan Lines,
• ANEK,
• Indirectly, Attica Enterprises through its alliance with Strintzis Lines

Figure F1 Market Structure Prior to the Opening of the Maritime Cabotage Market

Source: OECD, Regulatory Reform in Electricity, Domestic Ferries and Trucking, 2001.

F1.11 The companies traditionally specialised in particular routes, often reflecting their historical roots on particular islands. For example, Minoan and ANEK, both based in Crete, had all the licenses for routes to Crete from the mainland, and ANEK focused on the northern Aegean and Dodecanese routes.

F1.12 Following the opening up of the maritime cabotage market, these operators mainly kept serving their traditional routes and, in some cases, expanding to other routes. The operators currently providing services with more than 1 ferry (other smaller operators also exist) are:

• ANEK
• Hellas Flying Dolphins
• GA Ferries
• NEL (Lesvos Shipping Company)
• Blue Star Ferries
• Minoan Lines
• Lasithiotiki A.E.

F1.13 All ferry companies are entirely privately owned. Ports, on the other hand, are in public ownership.

F1.14 Despite the opening of the market to all ship-owners of EU member states, currently only Greek operators provide services. Foreign competitors are likely to find the Greek market unprofitable, given that economy ticket prices in Greece are much lower than those in other EU countries.

Regulator

F1.15 The domestic ferry sector was in the past highly regulated by the Ministry for Merchant Marine ( YEN). At present, YEN remains the main body responsible for the provision of ferry services, alongside the Ministry of Aegean, which is responsible for ferry services between Aegean islands.

F1.16 The Ministries act in line with national legislation, in particular Law 29/32 of 2001, which brought ferry services in Greece in line with EU regulations.

F1.17 YEN is responsible for monitoring vessel safety.

Licensing

Old regime
F1.18 In the past (prior to harmonisation with the EU regulations), ferries operated under a rigid and highly regulated regime. Licenses that were specific to the vessel were granted by YEN for specified itineraries at specified, invariant frequencies. Licenses for non-profitable services to islands were often bundled together in the same itinerary with profitable routes, or were imposed on companies as conditions for receiving profitable routes. Licenses were granted on the basis of non-transparent criteria and it was difficult to get a new license. Fares were also set by YEN.

F1.19 The Minister was aided by an advisory body, the Coastal Transport Advisory Committee ( CTAC), which would make non-binding recommendations about licenses and prices.

F1.20 Before September 2000, six of the twelve members of the CTAC were government officials or appointed by the Minister. The remaining six were split among four representatives of shipping, a representative of the Piraeus Chamber of Commerce and Industry, and the National Tourist Organisation. In September 2000, membership of the CTAC was expanded to include more consumer groups, both commercial and island residents, so that transparency would be increased, a level playing field for competitors would be created and the interest of the public would be better served.

New regime
F1.21 With the opening of the maritime cabotage market, the regime has changed. Ferry operators still require a license to operate, albeit under different conditions and mechanisms, discussed in the following paragraphs.

License conditions/restrictions

Old regime
F1.22 Prior to harmonisation with the EU Regulation, licenses were issued on the basis of a number of conditions with respect to:

• Frequency
• Service to uneconomical islands
• Pricing
• Employment practices

F1.23 The Minister for Merchant Marine would issue licenses to a specific vessel for a specific itinerary. The licenses used to have an indefinitely long duration. No vessel entering the domestic market could be older than 20 years, and the license was valid, if its terms were respected, until the ship was 35 years old.

F1.24 License applications required information about the vessel's technical characteristics, including carrying capacity of vehicles and passengers, as well as a feasibility study that included data on operating costs, transportation flows on the requested route, capacities of the ports of call and other data to prove the commercial viability of the proposal.

F1.25 The economic conditions attached to the license provided the following protections:

• The licensed itinerary could include islands for which the cost of providing the service exceeds the revenues gained.
• The crews had to be employed and on the payroll throughout the year, whether the vessel was operating or idle, and regardless of the seasonal variation in traffic. The crew had to be nationals of Member States of the EU or of the European Economic Area.
• There were only two levels of frequency of service - winter and summer - except that there was a statutory right to remain idle for 60 to 90 days annually for dry docking, maintenance, repairs, surveys, and inspection.
• Fares charged had to comply to the levels set by YEN.
• Vessels had to carry mail free of charge and had to be made available to the State during times of war for military purposes.

New regime
F1.26 Following the opening of the maritime cabotage market, services are now open to any operator that complies with the EU requirements and provides some basic documentation confirming their capacity to provide services. Such documents include:

• Tax related documents;
• Social security related documents;
• Insurance related documents;
• Criminal records;
• Affidavits confirming the use of electronic ticketing;
• Etc.

F1.27 No requirements are set with regards to the service provided apart from the fact that the vessel has to comply with the safety requirements and be suitable for the port facilities of the ports it serves. Additionally, the vessels have to be in service for a minimum of 10 months a year.

F1.28 If the offered services do not meet the frequency standards set by the state ( e.g. desirable frequency standards have been set for services to/from ports in the capitals of prefectures), the state can impose Public Service Obligations ( PSOs) and increase the frequency (albeit without providing subsidy). Such cases have been rare and in the few instances when they have occurred, the increased frequency has been accepted by the operator without any complications.

F1.29 Alongside the application for a license and the necessary documents, a letter of guarantee has to be provided. This is used as a means of enforcing the license requirements and as a means of compensation to the state if the provision of services is interrupted or not run in accordance with the aforementioned conditions.

F1.30 Applications for licenses are made once a year in January for the provision of services commencing in November of the same year. The licenses are for a year for all islands grouped in indicative routes.

Refusal of license or permission to operate a route

Old regime
F1.31 Under the old regime and prior to the reform of the CTAC in 2000, it was not always clear how criteria for licensing were weighed. It was not unusual for license applications to be turned down. Negative licensing decisions had been controversial, and obtaining a new license had been called "difficult". There seemed, in practice, to be a tendency to maintain the status quo, enabling incumbent companies to remain unchallenged.

F1.32 As an example, in September 1997, Panagopoulos (Attica Enterprises) applied to the Ministry of Merchant Marine for a license to operate a faster ferry between Piraeus and Heraklion, Crete. The new ferry would have cut the journey time from 11 to 6 hours, and the price would have been cut by 20%. YEN turned down the request on the grounds that the port facilities could not accommodate the ship, existing ships served demand adequately, and that the proposed lead-time, 18 months, was too long.

F1.33 After the reform of the CTAC in 2000, however, almost all requests for licenses have been granted.

New regime
F1.34 Under the new liberalised regime introduced in 2002, when Greece brought its ferry services regime in line with the EU regulations, licenses have been applied on most occasions.

F1.35 The only exceptions are cases for which the application for a license was not accompanied by a guarantee letter, one of the requirements for obtaining a license as it serves as a mechanism for license conditions enforcement.

F2. Lifeline Services

F2.1 Greece has a large number of islands services which are not commercially viable, due to the low demand especially in the winter months. These are islands with a small number of permanent residents and/or low levels of tourism development.

F2.2 Currently, lifeline services operate on some 70 routes of islands.

F2.3 The list of the tendered routes this year is as follows:

Source: Greek Ministry of Mercantile Marine

PSOs

Old regime
F2.4 Under the previous regulatory framework, two sets of islands were served despite such services being labelled unprofitable. One set, called "public service" islands, were islands that were served as intermediate stops in a licensed itinerary to or from a mainland port, as a condition of the license.

F2.5 The other set of islands that used to be served despite the service being unprofitable were islands that were served over "unprofitable routes." By definition, these routes are inter-island routes. The routes used to be designated by joint Ministerial decrees (Ministers of Finance, Development, and Merchant Marine) issued on request or proposal by the local authorities or other interested parties, and after CTAC's opinion had been pronounced. This designation used to be reviewed every five years. The obligation to provide services on unprofitable routes used to be allocated by annual tender, where companies bid for minimum subsidy. The amount of subsidy, however, used to be subject to some negotiation.

New Regime
F2.6 Under the current regime, lifeline services are defined by the free market. Islands for which applications to provide services are not made in January of each year are those islands for which services need to be provided under the Public Service Contract framework.

F2.7 When the list of island services that are not applied for (by January) has been compiled, YEN and the Coastal Transport Advisory Committee ( CTAC) combine the identified islands into routes, and then tender them as subsidised services, as will be discussed later on.

F2.8 The Ministry of Merchant Marine ( YEN) is responsible for defining the services as lifeline/ PSO.

Objectives of Lifeline services

F2.9 Classification of routes as lifeline services aims at securing the territorial integrity of the country and the cohesion of the Greek islands and mainland, as well as ensuring social justice and the economic development of the islands, which is important to the economy of the country.

F3. PSO/ PSC Services: How Are They Operated

Current operators

F3.1 As discussed earlier the operators for the subsidised services are the same as those serving the commercial routes. These are Greek, privately owned companies and currently serve some 70 routes.

F3.2 Under the previous regulated regime, as discussed in previous sections, the islands currently served under PSCs were served by means of providing subsidy or being cross-subsidised.

Minimum PSO/ PSC requirement

F3.3 The Ministry of Merchant Marine ( YEN) sets the minimum service requirements. The requirements for the provision of the PSC services are:

• Frequency: determined number of sailings per week.
• Period of operation: the ferry has to be in operation for a minimum of 10 months a year.
• Back-up: A replacement ferry has to be made available for the remaining two months a year. The details of this have to be made available at the stage of submitting the bid.
• Ferry standards: passenger capacity, car parking surface, total length. A standard type of service is required ( i.e. conventional passenger-car ferry).
• Safety: The ferry has to be suitable for safe use of the port facilities and safe service provision.
• Fares: A maximum fare is set for standard/economy class. Discounts are imposed for concessionary travellers.

F3.4 For all services, the ferry needs to be less than 35 years old (to be reduced to 30 in 2008).

F3.5 The Ministry of Merchant Marine ( YEN) is in charge of monitoring and enforcing regulations related to service issues. When the requirements are not met, penalties apply by means of making use of the letter of guarantee mechanism.

Carrying statistics

F3.6 Carrying statistics are not available to the Ministry of Merchant Marine.

F4. PSO/ PSC Services: Financial/Commercial Support

F4.1 The PSC services are subsidised by the government.

F4.2 There are two source of funding:

• National budget
• A surcharge of 3% that applied to all fares of all ferry services.

Subsidies and Remuneration amounts

F4.3 Maximum subsidies are calculated on a route distance basis. The per nautical-mile charge has been defined on the basis of past experience, given that lifeline services have been historically subsidised.

F4.4 In practice, operators are chosen following competitive tenders that identify the bidder requesting the minimum subsidy.

F4.5 Subsidies are provided on the basis of the sailings undertaken.

F4.6 Subsidy provision in 2003-2004 was some â'¬ 37.1 million, up from â'¬ 9.4 million under the old regime (2001). Information on the percentage of the total turnover this represents was not available.

Protection from Competition

F4.7 The mechanism by which the lifeline services are identified and PSC services are provided by default prevents overlap with commercial services provided by non- PSC operators.

F4.8 Under the adopted system, companies make their own, independent commercial decisions about the routes and islands served, once a year in January, when licenses for these routes are granted for the year (operations commencing in November).

F4.9 For those services that are not considered profitable, competitive tenders for subsidies are held in April, again for the annual provision of services commencing in November.

F4.10 This mechanism by default does not allow the introduction of competitive services on PSO/ PSC routes.

F5. PSO Services: The Contract

Contract Structure

F5.1 The contract is essentially basic. Responsibilities fall entirely on the operator and the government provides the subsidy in return.

F5.2 The operator has to comply with requirements regarding the number of weekly sailings and ferry standards, including safe port approach. A replacement ferry has to be provided if only one ferry operates on the route and is not in operation, but ferries can be replaced at any time, as long as the standards are the same.

F5.3 The contracts are annual and the first contracts started in November 2002.

F5.4 Some 70 routes were tendered in 2004, some of which had to be re-tendered or negotiated.

Risks

F5.5 Demand is probably one of the least important risk factors, as historic data on passenger traffic on the routes can inform decision-making. Nevertheless, the market is vulnerable to the overall conditions of the economy that can affect the number of trips undertaken for tourism.

F5.6 Other risks are related to the operating costs and the company finances. The price of fuel is a significant risk factor. Also, considerations with regards to the repayment of loans, interest rates, etc., come into the equation.

F5.7 The risks fall entirely on the operator as the Government provides a maximum subsidy in return for provision of services under the requirements discussed. No clauses related to compensation under any circumstances are included.

F5.8 The operator has to comply with the overall law, as well as the contract clauses. Penalties apply to sailings that are not undertaken. These are calculated on the basis of the "lost" nautical miles and the per-nautical-mile subsidy (minimum charge for 10 nautical-miles).

F5.9 The contract allows the operator to call at ports not served in the context of the PSC, as long as permission is granted by YEN and regular services are not disrupted. Additionally ferries can be replaced with ferries of the same standard.

F5.10 Additionally, in case of bad weather and if the port served in by the PSC service cannot be approached, the nearest safe port needs to be used.

The Tendering Process

Old regime
F5.11 Under the previous regime, services to islands with low demand were subsidised. Services to islands as part of a licensed itinerary were cross-subsidised by passengers on other routes and services to those on "unprofitable routes" were subsidised by the State and, perhaps, other passengers.

F5.12 The most efficient way to identify the least-cost provider is to competitively tender (for a subsidy out of the above-described fund) the obligation to serve a low-demand island. The Ministry already uses such a method for "unprofitable routes." However, YEN uses a different method to assign providers to "public service" islands. The licensee whose vessel passes by an island is not always the lowest-cost supplier: the value of the time lost in making an intermediate stop, particularly for an expensive and fast ferry, can be quite large. By extending the tendering process to all low-demand islands, the Ministry would in general reduce the cost of service. This would reduce the total amount of subsidy needed.

New regime
F5.13 Lifeline services are provided by the private sector following tender competitions for each of the routes.

F5.14 Having identified which islands are low-demand and regarded as unprofitable competitive tenders are held for subsidies to provide services to the remaining islands, grouped in routes, as discussed above.

Structure of Competition

F5.15 The contracts are awarded on the basis of a competitive tender, open to all operators that meet the requirements of the EU Regulation.

F5.16 Bidders submit a number of documents similar to those submitted for a license application, as well as documents proving that requirements with regards to the ferry standards are met. This is accompanied by a financial offer for the level of subsidy per sailing, which is the main criterion for the choice of the preferred operator.

F5.17 Bidders are likely to be incumbent operators on the routes, as Greek operators traditionally specialise in particular routes, reflecting their historical roots on particular islands.

F5.18 While lifeline services are not formally regarded as add-ons to existing services, in some cases, a route can consist of two parts, one operating on a free-market basis and the other under a PSC. This is a product of the profitable service operator winning the bid for serving the non-profitable route under subsidy and combining the two routes.

F5.19 The main mechanism for maintaining a level playing field is by provision of information with regards to the tender. The documentation is published in Greek National newspapers, the Official Journal of the European Union ( OJEU), and on the YEN website.

F6. EU Maritime Cabotage Rules

F6.1 European Union legislation, as well as national ones, govern the Greek domestic ferries sector. Council Regulation 3577/92 lifted cabotage restrictions in EU Member States for any ship flying the flag of an EU Member state. This Regulation defines how the principle of freedom to provide services has to be applied to maritime transport within Member States. This Regulation included a derogation for Greece, until 1 January 1999, for cruise ships and vehicle ferries over 650 tons sailing between mainland ports, and until 1 January 2004 for regular passenger and ferry services and services under 650 tons. This exemption concerned scheduled passenger and ferry transport to, from and between islands. In 2001, Greece adopted legislation which, according to the Commission, proved not to be in line with the European legislation in force ( EEC 3577/92).

F6.2 The eleven-year delay was intended to allow Greece to prepare for the opening of the market to competition, given the enormity of the task.

F6.3 In mid-2000, the Greek government took the first steps to reform the domestic ferry sector by expanding participation in the Coastal Transport Advisory Committee and convening law-drafting committees. The law aimed to create non-discriminatory conditions for competition and to otherwise protect the public interest. Public interest objectives include securing the safety and quality of service, and safeguarding the country's territorial integrity, and the economic and social cohesion of the island parts of Greece.

F6.4 Greece was the last of the EU nations to liberalise its coastal shipping regime. Greek waters were opened to foreign ferries in November 2002, two years before the EU deadline, so as to avoid the introduction of the new regime coinciding with the Athens Olympics in 2004.

F6.5 EU-flagged vessels may now apply to operate on Greek ferry routes after the lifting of the cabotage regime, which had protected domestic companies from foreign competition and support for lifeline services is provided in line with the Regulation.

F6.6 The Greek legislation of 2000, however, did not appropriately reflect the EU basic principle according to which public service obligations can be imposed on ship-owners performing island cabotage in the event of market failure to provide adequate services. Moreover, some of its provisions are also in breach of EU legislation, such as the requirement that all the non-Greek members of the crew should hold a certificate proving their knowledge of the Greek language.

F6.7 The Commission informed the Greek authorities about these issues in 2001, when the national legislation was enacted. Now that the period of the temporary exemption has expired, the Commission has initiated legal action.

F6.8 On 3 February 2004 the Commission sent a letter of formal notice to Greece for incorrect application of European legislation on freedom to provide services to maritime transport within Member States (maritime cabotage).

F6.9 Proposals were discussed with the European Commission. Also a number of disputes have emerged and been resolved with regard to the interpretation of the Regulation and its application.

F6.10 No major changes were made to the arrangements following the issue of the revised guidance.

Source

Interview with Ministry for Merchant Marine ( YEN), 15/12/2004

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