State aid exemptions miss the mark

Industry Database

COMMENT: The long-awaited European Union policy on government investments in seaports and airports has both high and low points. The sad part is that the high points are mainly centred around airports, while the seaport part takes the lion’s share of low points, writes Peter de Langen.

At its core, the policy addresses state aid, which distorts the playing field and has harmful economic effects. State aid also obstructs the ‘user pays’ principle and leads on a European scale to subsidies to imports and exports via ports, clearly without rationale. Thirdly, and this is perhaps the least acknowledged facet of state aid, state funding in practice implies governments play a key role in the decision-making on port infrastructure investments, even though this often leads to politically motivated investments in port infrastructure that create limited value for users.

In airports, the shift away from this model is now mostly complete: commercial undertakings (even though in some cases these are government owned) invest in airports based on a business case. The EU regulation re-enforces this principle: state funding for large airports is not allowed, while for smaller airports of up to 3 million passengers per year some funding is allowed, provided that they are not in the catchment area of another airport. For even smaller airports of up to 200,000 passengers, more aid is allowed, especially in view of the aim to secure accessibility to remote regions. In short: a sound approach.

For ports, there is no differentiation according to size, with the aim to ensure that the large European ports compete on an equal footing and that the port infrastructure is fully paid by users. Instead, public funding of up to €150m is exempted from state aid regulation.

Given that infrastructure investments can generally be split into various phases or sub-projects and can take years, creative governments can exempt huge investment sums from state-aid considerations. This gives governments huge freedom to continue to spend taxpayers' money in port infrastructure, even though past experiences suggest there is no basis to assume that this money will be well spent from the point of view of EU citizens.

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