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Appendix L Spain Case Study

L1. Ferry Legislation and Licensing

Domestic ferry services

L1.1 There is a clear difference, from a legislative point of view, between the lines that are operated between ports within the Iberian Peninsula and those which connect the continental territory with Spanish isles.

L1.2 Regarding the first ones, there is a large number of companies of all sizes that carry passengers or freight along the Spanish coast. We do not have a comprehensive list of these services. As the objective of the research is the transport from the continental territories to the islands, this case study mainly focuses on island ferry services.

L1.3 In terms of the routes from the different parts of Spain within the Iberian Peninsula to the islands, we consider the routes to the two main Spanish archipelagos (Canary Islands and Balearic Islands) and the routes to the North African territories of Spain (Ceuta and Melilla).

L1.4 The Public Interest Services in Spain cover mainly three different routes.

• Public Interest Services between the Peninsula and Balearic Islands.
• Public Interest Services between the Peninsula and Canary Islands.
• Public Interest Services between the Peninsula and Ceuta y Melilla (North of Africa).

L1.5 We will later describe what is defined as a "Public Interest Service Line" according to Spanish legislation.

Operators

L1.6 The ferry operators in Spain on the three different routes (Balearic Islands, Canary Islands and North of Africa) are shown in Tables L1, L2 and L3.

L1.7 All the companies operating in the Spanish ferry market are private. The only publicly owned company (Trasmediterránea) was sold to a consortium on the 30 ^th of July 2002.

Table L1 Ferry Operators in Spain. Route: Peninsula Canary Islands

Source: Ministerio de Fomento. Dirección General de la Marina Mercante ( www.mfom.es )

Table L2 Ferry Operators in Spain. Route: Peninsula Balearic Islands

Source: Ministerio de Fomento. Dirección General de la Marina Mercante ( www.mfom.es )

Table L3 Ferry Operators in Spain. Route: Peninsula Ceuta and Melilla (North of Africa)

Source: Ministerio de Fomento. Dirección General de la Marina Mercante ( www.mfom.es )

Regulator

L1.8 The Ministerio de Fomento, through its General Directorate of Marina Mercante (Merchant Navy), is the organisation in charge of regulating sea transport (passengers and freight) and, in particular, those trips from the peninsula to the islands.

L1.9 The General Directorate of Merchant Navy has its functions and objectives defined in the Law 27/1992 of 24th of November of Puertos del Estado y de la Marina Mercante (Port States and of Merchant Navy Law). The main three functions are:

• General planning of maritime navigation and of the Spanish civil fleet.
• Planning and inspection, technical controls, radio electrics, security, safety and pollution.
• Concession award and authorisation of maritime navigation services and issues related with the tariff system.

L1.10 The General Directorate of the Merchant Navy is structured in the following departments:

Figure L1 General Directorate of Merchant Navy Structure

L1.11 The Royal Decree 1466/1997 of 19 ^th September, by which is determined the legal regime of the regular cabotage maritime lines and of the Public Interest Navigations, has been regulating ferries up to a very recent decision of the Courts of Justice which attacked Chapter 2 of this Royal Decree. (The chapter regarding authorisations of regular lines of insular cabotage).

L1.12 Currently, the General Directorate of Merchant Navy, on behalf of the government is writing out a new Royal Decree to comply with this decision of the European Courts of Justice. The new regulation complies with the European Council Regulation 3577/92.

Vessel Safety
L1.13 The ultimate organisation responsible for vessel safety and security is the Marina Mercante (Merchant Navy), a General Directorate of the Ministerio de Fomento.

L1.14 Article 149.1.20 of the Spanish Constitution gives the State powers over the Merchant Navy, which content is specified in the article 6 of the Law 27/1992, of 24 ^th of November of Puertos del Estado y de la Marina Mercante (Ports of the State and the Merchant Navy) which sets in the paragraphs C, D and G of Section 1 the definition of Merchant Navy as the navigation security and the human life in the sea, maritime security and technical and operative inspection of vessels, crew and freight.

Licensing
L1.15 As was said before, there is a clear difference in the regulation of services between companies that operate lines between ports within the Iberian Peninsula and those that connect the continental territory with Spanish archipelagos or territories in the north of Spain.

L1.16 To operate a service between ports of the Iberian Peninsula, the only requirement is to communicate to the General Directorate of the Merchant Navy (Ministerio de Fomento) three months before starting the operation the desire to do so, and declaring the ports between which the service is going to operate.

L1.17 In addition, the operator will have to attach some documentation: proof that the operator is a shipping company, that they have a legal representative in Spain and that the ships used for that service comply with the requirements that the Ministry of Fomento points out in the article 81.2 of the Ley de Puertos del Estado y de la Marina Mercante (Law of State Ports and Merchant Navy). The operator is obligated to submit information about the service (the exact information to be sent is defined in Article 12 of the Royal Decree 1466/1997.)

L1.18 In terms of transport from the Iberian Peninsula to both archipelagos (Canary Islands and Balearic Islands) and to the territories in the North of Africa (Ceuta and Melilla), the services have been declared to be of Public Interest. Operators do not require any authorisation as they did in the past. Due to some legal changes that will be discussed later within the definition of Public Interest Services, nowadays, an operator only needs to express the desire of operating a route to the Merchant Navy (similarly to the ships that operate between ports of the Spanish Continental Territories).

L1.19 The Merchant Navy will make sure that they fulfill requirements in terms of the nationality of the crew and other issues of the boat. If these requirements are fulfilled, the operator is allowed to operate (it is very similar to an authorisation, but there is a slight legal nuance that makes it different).

L1.20 There are no restrictions whatsoever in terms of timetables, routes, minimum level of service, etc. The Merchant Navy will only make sure that they operate the service according to the terms that were agreed when they allowed the operator to operate that particular service.

L1.21 On the other hand, there are some specific lines or itineraries where the government wants to ensure a minimum level regarding frequency, timetables, quality, etc. When these Public Services are not carried out (by any operator) under the conditions that the government would wish, a Public Interest Service Line Contract has to be signed. As we will discuss later, the contract has to be awarded after a public open tender, in which any operator that fulfills some minimum requirements can bid for the budget that the government gives to operate that service. In this case the operator will need to have a minimum level of service that is the one that the government wants to ensure for that particular itinerary. Frequency, timetables, etc.

L1.22 The conditions or requirements for having the "old" authorisations or the "new" permissions are pre-established. So long as a company has these minimum requirements, the Merchant Navy will grant it permission to operate.

L1.23 According to the person responsible for these services in the Spanish Merchant Navy , there was a time when an authorisation was refused because the operator did not present the documents showing that it was up to date with its Social Security and Tax obligations. The Merchant Navy asked for the documents several times, and as they did not receive them they denied the authorisation.

L2. Lifeline Services

Definition of lifeline services/ PSO

L2.1 Since the last modification of the Law 27/1992, of 24 ^th of November 1992 of Ports and Merchant Navy ( Puertos y de la Marina Mercante ) in Article 109 of the Law 62/2003 ( BOE-Spanish Official Bulletin- nº 313 del 31.12.03), Public Interest Services are considered the ones that have a regular transport service with origin or destination to the Balearic Islands, the Canary Islands or Ceuta or Melilla (the two Spanish cities in the North of Africa).

L2.2 For its determination and definition, the Ministerio de Fomento, through the General Directorate of Merchant Navy, is now preparing a Royal Decree. In this Royal Decree the regular cabotage navigation to the isles (according with the article 2, 1º c of the Council Regulation ( CEE) 3577/92), passengers or freight maritime transport between ports in the peninsula and the territories out the peninsula, as well as in between the latter ones will be declared on Public Interest.

L2.3 Until a very recent sentence of the High Court in Spain that delivered a negative judgement on the Royal Decree 1466/1997 of 19 ^th of September, Public Interest Lines were regulated according to this Royal Decree. The sentence (Case C-205/99) led to the legal changes described in the previous paragraph.

L2.4 The Merchant Navy is in the process of passing a new Royal Decree that regulates the issue, and that broadly covers the Administrative Contracts of Public Service (that continue to be regulated according to the Chapter III of the Royal Decree 1466/97) and the Public Interest Lines (with the archipelagos of the Canary Islands and Balearic Islands and Ceuta and Melilla).

L2.5 All these lines are defined as Public interest Lines, but only those that the government wants to procure under a regular service with a specific minimum level of service are the ones that are operated under a Public Service Contract.

Bundling
L2.6 There are three different networks. The first one connects the Peninsula with the Balearic Islands, the second one connects the Peninsula with the Canary Islands and the third one connects the Peninsula with the North of Africa (Ceuta and Melilla).

L2.7 All of them are Public Interest lines according to the definition in the previous paragraphs. Some services were "authorised" but others were awarded under a Contract because the government wanted to ensure a regular service with a minimum level of service.

L2.8 All three contracts were awarded to Trasmediterranea the 31st of December of 2001 with a different budget (we will talk later about that). The concession period was for five years.

L2.9 The definition of a Public Interest Service is done by a Royal Decree.

L2.10 On behalf of the government, the Ministerio de Fomento, through the Legal Department of the General Directorate of Merchant Navy, was responsible for writing up the previous Royal Decree and is also responsible for writing the new one.

L2.11 Royal Decree (1466/1997) refers to the Articles 149.1 20 and 21 of the Spanish Constitution that gives the government powers over any issue related with merchant navy and to the Law 27/1992 of 24 ^th of November of Puertos del Estado and Marina Mercante (State Ports and Merchant Navy). Article 7.4 defines the interest public navigations.

L2.12 In Spain, the seventeen autonomous communities can have different competences and attributions in various issues (justice, transport, etc.). One of those could be maritime transport. If an autonomous community has competences over Maritime Transport, they can define a Public Service Interest Line if they believe it is necessary, or if the transport is in between isles and does not connect one of their ports with a port in the Peninsula that is competence of another autonomous community or the central government.

L2.13 The Canary Islands have one public service contract with an operator for inter-island services. As this was the jurisdiction of the Autonomous Community of Canary Islands, The Merchant Navy (central government body) does not have much information regarding this contract and how it was tendered.

Objectives of PSO

L2.14 The objective of classifying a specific line as being of Public Interest is due to the geographic location. The government wants to ensure that both archipelagos (Canary Islands and Balearic Islands) and the North African cities of Ceuta and Melilla have the minimum essential communications with other territories of the Peninsula. These territories need to have the guarantees that they are going to be supplied with all the necessities.

L2.15 The concept or definition of Public Interest lines applies to foot passenger, car passenger and freight. However, no Public Service Interest freight line has a Contract of Public Interest, so these lines don't receive any money from the government.

History of Government Intervention

L2.16 Historically a state-owned company provided these services under a contract. However, on the 2 ^nd of October of 2001, the Government initiated a privatisation process of Trasmediterránea. The process ended on 30 ^th July 2002 and Trasmediterránea was sold out to a consortium formed by Acciona Logistica (services group), Caja de Ahorros del Mediterraneo (Local Bank), Compañía de Remolcadores del Mediterraneo (Tug Company), Agrupación Hotelera Doliga (hotel and leisure association), Suministros Ibiza and Naviera Armas.

L2.17 In between this process the Company was awarded with the three previously mentioned Public Services Contracts.

L3. PSO/ PSC Services: How Are They Operated

Operators

L3.1 Operators of any itinerary on the three different routes (Canary Islands, Balearic Island and Ceuta and Melilla) are considered as operators of Public Service Lines. However only one of them, Trasmediterránea, has a Contract for Operating a Public Service Line.

L3.2 The main difference between having a Contract for Operating a Public Service Line and only Operating a Public Service Line with an "old" authorisation or with a "modern" permission is that the latter does not receive any financial support from the government for the concept of covering a Public Service Line. The financial issues will be discussed later.

L3.3 Other operators of the Public Interest Lines do not receive a subsidy under contract. They do, however, receive a bonus to the tariff to compensate the discount that they have to apply to the residents in the Canary Islands, Balearic Islands or Ceuta or Melilla with EU nationality (around 33% of the base rate). All the operators who have an authorisation or the Contract itself have to apply the bonus to the tariff to the islanders. These operators do not lose any money for these discounts because the Central Government compensates them at the end of the year for all passengers who paid discounted fares.

L3.4 The Public Interest Service Contracts have for many years co-existed with commercial services on the Public Interest Lines. The only difference is that the latter only operate itineraries with the frequencies, timetables and fares that make them profitable for them.

Minimum PSO/ PSC requirement

L3.5 There is no minimum requirement to operate a Public Interest Service line than the ones that the operator specifies in its business plan when it asks the General Directorate of Merchant Navy for the "permission" (formerly, "authorisation") to operate a particular line. He decides the capacity, timetables, fares, type of service, ports to serve, etc. in order to provide a competitive service.

L3.6 There are some requirements on the crew nationality and on the boat.

L3.7 However, if the government wants to ensure a regular service, with minimum requirements on services levels: frequency, timetables, fares, etc., it has to carry out a public tender for a Public Interest Service Contract. In this case, the minimum requirements of the line are fixed in the bidding specification for tender, and therefore in the contract. The General Directorate of Merchant Navy is responsible for defining these requirements.

Monitoring

L3.8 Regardless of the old "authorisations" or the new "permissions", the General Directorate of Merchant Navy checks periodically whether the operator is providing the service in the terms that it was agreed when he received the "permission".

L3.9 Where the operator is not providing the service according to the terms agreed, the infringement or breach could be "serious" or "very serious". Depending on the type of infringement the operator would be fined â'¬12,000 to â'¬90,151. The permission to operate the line can also be cancelled. The fines are defined in the Royal Decree 1466/1997 and in the Law 27/1992.

L3.10 If the operator has a Public Interest Service Contract, the General Directorate of Merchant Marine is also in charge of monitoring contract fulfilment. The fines for infringement or breaches of the contract are defined in the contract itself or in the Law of Administrative Contracts of the State (approved by Royal Decree 2/2000).

Fares

L3.11 If the Public Interest Service is regulated under a Contract, the tariffs and how they should increase are specified in the bidding specifications for tender and therefore in the PSC.

L4. PSO/ PSC Services: Financial/ Commercial Support

Subsidy and Remuneration

L4.1 There are two different kinds of financial support. The first one is the support that the government gives to the company that has been awarded with the Public Service Contract. The only company that currently receives this money is Trasmediterránea.

L4.2 The other subsidy is the money that the government gives to any authorised company that carries passengers who are residents of one of both archipelagos (Canary Islands or Balearic Islands) or Ceuta or Melilla and are citizens of the EU.

L4.3 This subsidy lump sum, the Public Service Contract and the bonus to tariff for island residents is only applicable to foot passengers and for vehicle passengers. Freight is not supported in any way

L4.4 The following table shows the quantity of these measures:

Table L4 Subsidies to Maritime Transport Given by the Central Government

Source: Spanish Nacional Budget 2005. Programme 441.N

L4.5 Although the main financial support comes from the government, the different Autonomous Communities involved could also sign other Public Interest Service Line Contracts between their Islands if they think it is necessary and no other company wants to carry out that service within a free market.

L4.6 The remuneration for the three different Public Service Line Contracts now in operation in Spain is pre-established in the contract. In the bidding specifications for tenders, each of the bidders offers a different quantity to win the five-year contract. This is the total amount that the winning bidder is going to obtain from the government during the next five years. The following table shows the maximum budget that the bidders could offer and the amount that the winning operator finally offered (Trasmediterránea.).

Table L5 Public Contract Lines Budgets: Maximum And Awarded

Source: BOE (Official Spanish Bulletin) Tuesday 29 ^th January 2002

L4.7 The budgets previously stated cover the whole five-year contract. The government pays these sums monthly, according to the bill presented by the operator. The Merchant Navy, through its "Capitanias" in each port, ensures that they have carried out the service according to the contract before the money is paid.

L4.8 The General Directorate of Merchant Marine has replied that they do not know what proportion of the operator's turnover the subsidy amounts represent.

Protection from Risks

L4.9 The overall subsidy amount is fixed in the contract. If the operator carries more passengers than was forecasted when they submitted the bid, they will make more profit. On the other hand, they can lose money if the forecasts are not what they expected when tendering.

L4.10 The only services that overlap with those provided by the Public Service Line Contracts are those from the Peninsula to Balearic Islands. In particular, the routes between Barcelona-Ibiza and Valencia-Palma de Mallorca. The Public Interest Service Contracts to Canary Islands and North of Africa (Ceuta and Melilla) do not face any competition from any other operator.

L5. PSO Services: The Contract

Structure of Contract

L5.1 Public Interest Service Line Contracts are regulated according to the Council Regulation 3577/1992, of 7 ^th of December (Official Journal of the European Union Nº L 364/7 del 12.12.92), to the Spanish Royal Decree 2/2000 of 16 ^th of June by which is approved the Law of the Public Administration Contracts and by the Royal Decree 1466/1997 of 19 ^th of September.

L5.2 The operator of the Public Service Line Contract has the responsibility to operate the line according to what has been established on the bidding specifications for tender and in the contract itself in terms of continuity, regularity, frequency, capacity and quality.

L5.3 The operator also has the obligation to adapt the service to the unusual necessities that can occur during the contract. It also has the obligation to guarantee complementary transport services in case that the demand increases substantially. The operator also has to communicate to the General Directorate the maximum tariffs that it is going to apply for its approval. In case of bad service the operator has to compensate the users and third parties (if affected).

L5.4 The responsibilities for the Administration is to pay a monthly amount to the operator as agreed in the contract, and to ensure the operator is achieving the minimum level of service established in the contract.

L5.5 The harbours do not bear any responsibilities. They charge the access tariffs according to the type of vessel and the services required.

Risks

L5.6 The major risk is demand. The operator has to forecast five years in advance the number of passengers that a particular line will have. Five years is not long compared to other kinds of concessions or administrative contracts, however, if there is a decrease in the number of passengers using the line, the government is not going to pay them anymore than what was foreseen in the tender.

L5.7 If any unexpected damage to the Contract occurs, the Administration will deal with it and will pay the Operator.

L5.8 As the contracts are not exclusive, another risk for the operator with the Public Interest Service contract is that another operator (without a contract) can operate on the same line and compete for demand.

L5.9 Harbours do not bear any risk in this scheme because they charge the tariffs as usual. All the risks are on the operator's side.

L5.10 The only risk that the Administration could have is that the operator who has been awarded the contract fails to carry out his duties as stated in the contract and so a new tender has to be carried out.

L6. The Tendering Process

L6.1 No all the Public Interest Service lines go out to tender. Only the ones that the government wants to ensure a reliable service. These contracts have to be announced in the BOE (Official Spanish Bulletin) and in the Official Journal of the European Union.

L6.2 The latest contracts awarded have a length of five years, according to the orientations of the European Directive.

L6.3 The last three Public Interest Service Lines Contracts were awarded on the 31 ^st of December 2001 and they will expire on the 31 ^st December 2006.

L6.4 There were many bidders in these tenders, mainly large operators who were already in the market.

L7. EU Maritime Cabotage Rules

L7.1 Spain has been supporting Public Interest Services a long time. The actual contracts are regulated with the Royal Decree 1466/97 and with its own bidding specifications for tenders.

L7.2 The previous contract was signed in 1978, with the name "Contrato Regulador de los Servicios de Comunicaciones Marítimas de Interés Nacional"(Regulator Contract of the Maritime Communication Services of National Interest), that it came into after another one denominated "Servicios de Comunicaciones Marítimas Rápidas y Regulares de Soberanía"(Fast and Regular Maritime Communications Services of the Kingdom) that was based in a Royal Decree passed on purpose (1876/1978 of 8 ^th of July. BOE nº 190 de 10 ^th of August).

L7.3 The government-owned company (until two years ago) Trasmediterránea was the operator that received the money from the government to operate these services.

L7.4 The subsidies in Spain in relation to maritime transport in general, as in other European countries, were first introduced after the publication of the Cargo Preference Act (1904) from the United States of America.

L7.5 Case C-205/99 at the Tribunal Supremo (Supreme Court) in Spain sought to annul Royal Decree No 1466 on the grounds that Royal Decree No 1466 was inconsistent with Community law, in particular Regulation No 3577/92, in particular Articles 1, 2 and 4 of 7 December 1992 applying the principle of freedom to provide services to maritime transport within member states.

L7.6 The EC deemed it clear that national legislation, such as Article 4 of Royal Decree No 1466, which makes the provision of maritime cabotage services subject to prior administrative authorisation, liable to impede or render less attractive the provision of those services and therefore constitutes a restriction on the freedom to provide them.

L7.7 The Court ruled that:

• The combined provisions of Article 1 and Article 4 of Council Regulation ( EEC) No 3577/92 of 7 December 1992 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage) permit the provision of regular maritime cabotage services to, from and between islands to be made subject to prior administrative authorisation only if:
• a real public service need arising from the inadequacy of the regular transport services under conditions of free competition can be demonstrated;
• it is also demonstrated that that prior administrative authorisation scheme is necessary and proportionate to the aim pursued;
• such a scheme is based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned.
• Community law permits a Member State to include in the conditions for granting and maintaining prior administrative authorisation as a means of imposing public service obligations on a Community shipowner a condition enabling account to be taken of his solvency, such as the requirement that he have no outstanding tax or social security debts, thus giving the Member State the opportunity to check the shipowner's "capacity to provide the service", provided that such a condition is applied on a non-discriminatory basis.
• Article 4(1) of Regulation No 3577/92 is to be interpreted as permitting a Member State to impose public service obligations on some shipping companies and, at the same time, to conclude public service contracts within the meaning of Article 2(3) of the regulation with others for the same line or route in order to ensure the same regular traffic to, from or between islands, provided that a real public service need can be demonstrated and in so far as that application of the two methods concurrently is on a non-discriminatory basis and is justified in relation to the public-interest objective pursued.

L7.8 In 1998, the European Commission investigated aid given to the Spanish state-owned ferry operator Trasmediterranea and found that the tender process was flawed and the playing field was not kept level. This included the tender not being sufficiently widely advertised, operators not having enough time to bid, limited possibilities for non-Spanish operators, and contract periods being too long in length.

L7.9 The official at the Merchant Navy could not give us details of this case. The only thing we know for sure is that the first contract was terminated, and that was why the Merchant Navy had to tender the three contracts that are currently in place.

L7.10 No investigation nor law suits have been brought against Spain since.

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