Examination of Witnesses (Questions 80-97)
MR TERENCE MORDAUNT, MR JOHN DEMPSTER, MR DAVID WHITEHEAD AND MR NIGEL PRYKE
WEDNESDAY 24 APRIL 2002
80. Have you been given any indication of that from the Commission?
(Mr Whitehead) Yes, we have.
81. That they would expect a spin-off because they would expect to be able to impose the implications of the Transparency Directive?
(Mr Whitehead) One of the ideas is that the threshold of 40 million could be lowered considerably so that we get a lot more ports who are subject to the transparency rules. That is very important. At the moment we only get just a small number of very large ports whereas subsidy is spread right across. It should affect a greater number than at the moment.
82. How serious a problem is this?
(Mr Mordaunt) A serious problem
(Mr Dempster) It is in fact more serious than is often appreciated because there is a surprising amount of competition between United Kingdom ports and ports on the continent of Europe. It may seem paradoxical but we have had the example of support for the North Sea oil and gas industries, for example, which can be serviced from either side. We have the whole issue of the transhipment of containers and with traffic like cars there is competition. I know Bristol are much involved in this business where there is competition as to which port they come in through.
83. Can you point to any examples where British ports have lost out because of it?
(Mr Pryke) We can give lots of examples of where state aid has been given to major competitor ports. For example, there is a new container port being built in Le Havre and one third of the cost is directly provided by the French Government and a large part of the rest is provided by the Chamber of Commerce. The Chamber of Commerce is part funded through a tax, so taxpayers' money is buying most of the new port.
84. Does it also get regional assistance?
(Mr Pryke) It quite possibly does as well.
85. What happens about state aid rules then?
(Mr Pryke) I do not believe there is any law against the state providing money to buy port facilities. It just distorts the picture, but I do not believe they are necessarily breaking any laws.
(Mr Dempster) If the infrastructure is open to general use under the Treaty rules then you can give state aid to it and that is the big issue at the moment as to how we get over that and identify what is distorting but unfortunately the Treaty rules allow a lot of state aid to be quite above board.
86. I should like to get to the bottom of this a little more if we can. You say in your evidence that there is financial assistance towards the maintenance and development of facilities in European ports and then you want to talk about infrastructure. Following the question asked by Louise Ellman, I may have missed it in your evidence, but can you provide the Committee with some sort of breakdown using the Le Havre example as to how this state aid is reaching ports on the European continent and what form it is taking?
(Mr Dempster) Could I refer the Committee to the annex to the paper which we submitted to you on this subject which in fact contains a table, the best table we could assemble, which shows for most Member States how the various pieces of infrastructure are financed. You will see that in most cases the investment in projects such as locks, breakwaters, capital dredging is financed in whole or in part from public funds. In many cases where it is described as being financed by the port authority it has to be borne in mind that the port authority is equivalent to what we would call a nationalised industry, so it is effectively indirectly financed from public funds. May I explain? This is not necessarily what we would call state aid within the terms of the Treaty. Under the terms of the Treaty this is legitimate. Our concern is that there is leakage and there is obscurity and there is strong suspicion that illegitimate state aid also takes place.
87. Nevertheless, these are sources of finance that are not available to British ports.
(Mr Dempster) Absolutely.
88. The danger is that it can not only distort competition, whenever competition exists, but it can also work to the disadvantage of UK ports. How much of a disadvantage is that? It appears as though UK ports are doing not too badly at the moment; certainly better than years gone by in spite of the support given to your competitors, so how much of a problem is this to you?
(Mr Pryke) It is a huge problem because if you take the Le Havre example, there is also another one in North Germany. There is another brand new huge container port being built in North Germany and there are huge developments in Antwerp as well. Between them they are competing for the transhipment business of the main container lines. Felixstowe, for example, had a large chunk of that business which broadly speaking is the Scandinavian trade and the Iberian Peninsula which very often gets transhipped in one of the big North West European ports. At one stage something like 35 per cent of Felixstowe's business was transhipment. Clearly they are building and all of that building is being financed by the port itself. If somebody else is having that new port finance through government sources, it makes it much easier to lower the price and secure the business.
89. My last question is not to do with the port infrastructure within the port itself but the hinterland, road access, rail access, which seem to me almost equally important. If you cannot get your goods in and out of ports to where you want them to go, you have a real disadvantage. Would it be true to say that British ports and their operators are really only concerned with the port itself? You are not worried about the hinterland and its infrastructure.
(Mr Whitehead) No.
(Mr Pryke) No.
(Mr Mordaunt) No.
(Mr Dempster) No; certainly not. We have had a lot of discussions, for example, with the Strategic Rail Authority about their ideas for improving the network to increase its capacity to handle freight. Likewise we have had a lot of discussions with the Highways Agency at local level. Ports are very concerned indeed about the need to have adequate landside access.
90. If you have this uneven playing field, in addition to this infrastructure issue you are discussing, what do you think needs to be done by government to begin to redress the imbalance?
(Mr Dempster) It is all a question of resources, not for the first time. There is a problem on the railways, in particular, there is a lot of congestion on the West Coast Mainline for example and we are concerned that passenger traffic and the Government's plans to increase passenger traffic will squeeze out freight even further. It is a matter of great concern.
91. I did not quite mean in that sense. If you are suffering this disadvantage as a result of financial support to your competitor ports on continental Europe, it seems to me there are two ways of addressing it. One is that you get a level playing field throughout Europe. We should live so long! That is one possibility. The other possibility is to argue with the UK Government that it too should be changing its policy otherwise British ports are not only going to continue to suffer this disadvantage but will increasingly suffer to the point where we are losing our competitive edge and that could cost jobs and our position as global ports but also European ports.
(Mr Whitehead) The Government have supported us in acknowledging the difficulties that subsidies create. I do not think there is doubt about that. Where there are doubts and problems is how you actually address it. To give you one example of how it could possibly be addressed it is through port charging. If we have a system of cost recovery charging for ports throughout the EU, and I do not know how it can be achieved, then that could start to resolve the state aid problem. This is a very long-term policy but that is the kind of thing which might possibly start to tackle it. We have great problems because the rules seem to protect what is going on at the moment. It needs to be something pretty radical to change things and that is what we are seeking.
92. My impression is that the reason the state aids rules are not working is because they are applied by a different directorate, DGIV. You do say you would like clear guidelines from the Commission. Why in your view are you not going to get them? What is wrong with the rules under the Treaty to which Mr Elsner referred?
(Mr Dempster) They are all dealt with under the directorate of which Mr Elsner is a member, DGTREN, but it is a different department within that directorate. So Mr Elsner is not personally responsible but it is dealt with within his directorate. One of the problems is that there are many grey areas as to what is and is not public infrastructure. To quote one example, if a channel is dredged to a greater depth in order to accommodate traffic going to one terminal, there is an interesting question of whether that is public infrastructure, in which case it would be legitimate, or whether it is a specific assistance to that one terminal, in which case it is not. I just quote that as one example of a general issue of what is and is not state aid.
93. In the BPA memorandum of evidence you refer to port security, particularly post 11 September and I am aware of the upgrading of this, having visited Felixstowe and Harwich recently. You have asked the DTLL to keep the security levels under constant review. Is this because you are not satisfied with the upgrading that has happened?
(Mr Whitehead) No. What we are saying through that is to keep security levels proportionate and realistic and related to threats. Post 11 September, as you would expect, the risk assessment level went up quite dramatically and the costs increased and so on. After a while they went down again but the levels always take a long time to go down and we did ask on a number of occasions for evidence of the actual maritime risk, as opposed to other international risks. That is an internal UK situation. Separately to that we have proposals to the IMO about international measures for port security and this involves container checking, port security plans and so forth. We have a public responsibility. All we are saying is: please keep it realistic and in tune with what ports can actually do.
94. I want to ask about the different levels of adherence to Directives. There is a lot of anecdotal evidence per se in terms of Directives about rigid adherence in the UK and, let us say, less rigid adherence in other parts of the EU. I was just wondering how you would look at the adherence in relation to this Directive say 12 months from now.
(Mr Whitehead) The Access to Port Services Directive?
(Mr Mordaunt) We were heavily involved in drawing up a document to show the tremendous discrepancy which took place on the Habitats Directive. We challenged the Habitats Directive in the European Parliament because we had to delay the UK Government going ahead with designation. We knew and we knew five years ago that the Europeans were not going to designate their channels, they were not going to designate their port areas. This does have some action: English Nature have now confirmed what we have said and they agree with us. They say that Europe is going to make a statement and it will all change. It will not change. We talked to people all over Europe. The Europeans are not going to designate their channels and port areas. In a very similar way that we were talking to the ports five years ago, we are talking to ports around Europe now on the Port Services Directive. There is an Italian port that is telling us how to get round this and I can tell you that in the UK there is no way we could get round it like that at all. I have heard an Irish version as well. I am assuming that this Directive is implemented in the UK, as they always have been before, but I do believe that there is a real danger that this Directive will be properly implemented here and probably in some other European countries, but certainly not in all.
96. You are going to need to appoint some Mafia consultants, are you not? Are you satisfied that government understands your problem and is backing you?
(Mr Mordaunt) They have a very difficult problem.
97. I know their problems are quite great. Do they understand what you are saying to them and do they back you?
(Mr Mordaunt) The Department of Transport understands what we are saying. We should like them to go a lot further. They feel that they must compromise to some extent.
Chairman: As always they are being flexible and there is no indication that anyone else is. I draw my own conclusions from Mr Elsner's evidence. Thank you very much gentlemen, you have been very helpful.