In this number of our newsletter, we begin a reflection on port pilotage which, for its operational relevance, has been the subject of great attention, both from the national case-law and the European Union, and by the Authority for Competition and Market ("AGCM"), in view of a necessary and continuous opening of the market to competition.
Port pilotage falls within the so-called technical-and-nautical services as regulated by Article 14 of Italian Law No. 84/94 and therein defined as general-interest services whose organisation lies with the competence of the Maritime Authority in agreement with the Port System Authority.
Due to its relevance in port operations, pilotage has been given a big deal of attention, on the one hand, by both Italian and EU case law and, on the other, by the Italian Antitrust Authority ("Autorità Garante della Concorrenza e del Mercato", with a view to meeting the general need to constantly foster market competition.
In its note No. 5415/19971, issued as a result of a Survey in the Area of Port Services, the Italian Antitrust Authority highlighted a few critical issues in the pilotage market, which stand as an obstacle to the enhancement of competition in the sector.
Indeed, despite directly contributing to the achievement of high navigation-safety standards, pilotage service cannot justify any "a priori restriction on the number of operators". Indeed, according to the Authority, opening to competition does not prevent achieving economic efficiency in the provision of such services, while at the same time allowing safety protection.
In this respect, it should be noted that the restrictions on competition arising from navigation-safety needs do not always involve the satisfaction of proportionality requirements but as a matter of fact, more or less intentionally, such restrictions end up giving regulatory coverage to certain monopolistic positions2, which should only be allowed when there is no other way to ensure safety.
Moreover, any unreasonably-high cost in port services, favoured by a monopolistic context, would encourage a shift of maritime transport traffic towards other transport modes such as road transport, involving more adverse effects from an environmental and safety perspective.
At the same time, the self-handling of technical-and-nautical services might involve problems in terms of the breakeven point for operators carrying out such business as their principal business and incurring universal service costs. In fact, whenever a shipping company or a terminal operator decides to provide one or more of those services on its own, it would eventually take money from the corporation providing the universal service, without however incurring the fixed costs of a constant presence.
It is a matter of delicate harmonies in crucial areas, which in 20113 led the Italian Antitrust Authority to make further observations on the "competition issues" related to technical-and-nautical services in Italian port areas, as follows:
- statutory reserves must be associated with absolutely essential needs, the general rule being that of a free a market, open to competition among operators;
- the issue of navigation safety may become a pretext to prevent competition in the sector, also considering certain cases of liberalisation of such services in other countries;
- the provider of reserved services should be selected through a public tender so as to allow efficiency maximization as well as price minimisation, while meeting safety requirements;
- in most of Italian ports there is no concessionaire turnover, which circumstance adversely affects not only competition "for the market", preventing access by other operators, but also competition "in the market" and, ultimately, the relevant cost setting based on standard competition mechanisms.
In this regard, the Italian Antitrust Authority also reviewed the tariff-setting methods applying to pilotage services in a legal opinion of 20134, underlining as follows:
- the tariff-setting mechanisms currently in force do not meet any principle of competition focused on business efficiency, as the provision of pilotage services is carried out in a legal exclusivity and compulsoriness context, without considering the definition of management costs nor having regard to pilotage service organisation methods, but rather focusing on merely covering the costs reported in tax returns and income deemed necessary by the person concerned;
- it may also happen that the risk of a company be fully transferred onto the service's final users, with no evidence being offered of this being absolutely required for actually satisfying the public interest underpinned by the desired safety level;
- in this respect, the criteria and mechanisms selected are in conflict with the competition principle under Article 106 TFEU, insofar as they must be considered to determine a cost of the services payable by final users that, as a matter of fact, can turn out to be disproportionate to the actual safety level required in a port area based on its actual traffic level.
In light of such issues of concern, prompt action is needed in several areas to ensure the efficiency of the service in a context of fair competition, namely in terms of:
- selection of concessionaires – lack of turnover not only adversely affects market competition but also cost setting based on standard mechanisms applying in a competitive context;
- restriction on self-handling right – Italy and Greece are the last, among European countries having some weight in the maritime transport industry, still not using the so-called Pilotage Exemption Certificates (PEC), which allows entering and leaving ports with no pilot on board in certain cases; a possible alternative – which however involves more adverse results for users in terms of actual cost reduction – is VHF-based pilot service;
- tariff setting – applicable law (see Article 14, paragraph 1 bis Law No. 84/94) provides that, in accordance with a Decree to be issued by the Italian Ministry of Infrastructure and Transport, the following aspects should be regulated: (a) the mandatory nature of pilotage service, (b) the tariff setting criteria and mechanisms applying to pilotage, towing, mooring and inshore services, subject to joint preliminary investigation conducted by the General Command of Harbour Masters and joint unions of Port System Authorities, service providers and port users; on the other hand, the consultation between service providers and port users, joined in a single trade association, has as a matter of fact slowed the debate on subjects that were highlighted by the Italian Antitrust Authority as early as than twenty years ago and are still unsolved.
The above are quite relevant issues impacting both the efficiency and profitability of the service, and therefore worth addressing individually in future newsletters.
1 See the Closing of Survey No. 5415 of 16 October 1997 in Bull. No. 43/1997.
2 In its reasoning, the Italian Antitrust Authority refers to a couple of decisions of the ECJ (now the European Court of Justice), namely, judgment of 17 May 1994, Corsica Ferries/Corpo Piloti Porto di Genova, Case No. C-18/93 and judgment of 18 March 1997, Diego Calì & Figli/Servizi Ecologici Porto di Genova, Case No. C-343/95.
3 See also Italian Antitrust Authority, AS905 – Technical-and-nautical services and setting of the relevant tariffs in Italian ports, Report dated 14 December 2011, in Bull. No. 1/2012, pages 30 et seq.
4 See the Italian Antitrust Authority, AS1027 – Tariffs for pilotage service in national ports for years 2013/2014, dated 1 March 2013.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.