Brev til ESA vedr norske flyavgifter

Air passenger Tax – exemption for certain routes – additional information

Reference is made to the Authority’s letter of 24 November 2000, requesting additional information about the Norwegian air passenger Tax – exemption for certain routes. Reference is also made to the Authority’s letter of 13 December 2000, postponing the deadline until 19 January 2001.

In its letter of 8 November 2000 the Ministry gave an account of the Government’s proposal for amendments to the air passenger tax. The Ministry would like to inform you that the proposal was adopted by the Storting on 28 November 2000 without amendments and will be implemented as from 1 April 2001.

The Ministry of Finance hereby confirms that it is not the Government’s intent to provide any illegal state aid. We are of the opinion that the exemption is not covered by the scope of the EEA Agreement art. 61 (1). Nevertheless, we are pleased to provide the following additional information to explain why the adopted exemption for the northernmost Norwegian counties, even if the exemption were covered by Article 61, cannot be regarded as illegal state aid.

1. Aid to air carriers - justification of the exemption for certain routes

Under the European Commission’s guidelines concerning the application of the state aid provisions of the EC Treaty and the EEA Agreement in the aviation sector and in line with Chapter 30 of the Authority’s State Aid Guidelines, operating aid to air carriers may be allowed as compensation on routes with a public service obligation (PSO routes) and as aid of a social character.

• compensation on routes with a public service obligation (PSO)

The majority of routes within the exempted area are PSO routes. These are as follows (as of 14 September 2000):

• Routes between Vadsø, Båtsfjord, Berlevåg, Mehamn, Honningsvåg and Hammerfest. Routes between these airports and Kirkenes and Alta.
• Hasvik – Tromsø, Hasvik – Hammerfest
• Sørkjosen – Tromsø
• Vardø – Kirkenes
• Lakselv – Tromsø
• Andenes – Bodø, Andenes – Tromsø
• Svolvær – Bodø
• Leknes – Bodø
• Værøy – Bodø
• Røst – Bodø
• Narvik (Framnes) – Bodø
• Brønnøysund – Bodø, Brønnøysund – Trondheim
• Sandnessjøen – Bodø, Sandnessjøen – Trondheim
• Mo i Rana – Bodø, Mo i Rana – Trondheim
• Mosjøen – Bodø, Mosjøen Trondheim.

It follows from this overview that some of the routes covered by the exemption are not PSO routes. For example this applies to routes between the exempted area and other parts of Norway and international flights from the exempted area.

In our opinion the exemption for these routes can be justified as aid of a social character.

• aid of a social character

According to point 24 of the European Commission’s guidelines concerning the application of the state aid provisions of the EC Treaty and the EEA Agreement in the aviation sector, aid of a social character pursuant to Article 61 (2)(a) of the EEA Agreement must fulfil certain requirements. These are set out in the Authority’s letter of 24 November 2000.

The following information shows why the exemption fulfils these requirements.

1. There is a need for the residents of northern Norway to travel between northern Norway and southern Norway

The reasons for this are as follows.

Commercial reasons

In a study of Norwegian enterprises, the Institute of Transport Economics (TØI) found that transportation costs in the northernmost counties are much higher than in more central areas [Transportation volume and costs in Norwegian industrial companies, Working Paper, March 1996, K.E. Hagen]. For example, in Finnmark county, transportation costs amount to as much as 90 per cent of the wage costs. These costs tend to decline substantially the further south the company is located. The high transportation costs have a negative effect on the profitability of companies in the north (ibid.).

Companies in northern Norway are more dependent on travel to the south than other companies. The reason is that the local market in northern Norway is often too small to sustain production. Only 10 per cent of the population resides in the northernmost counties, but the land area amounts to 35 per cent of the total land area of the country (source: Statistics Norway , Statistical Yearbook 2000). Thus a substantial part of the national market is located in the south. Furthermore, there are important financial institutions in the south, such as the stock exchange, which is located in Oslo and Bergen. Therefore, most companies in northern Norway depend on exporting their goods and services out of the region in order to survive. The market in the southern parts of Norway is larger, and companies there can therefore to a greater extent produce exclusively for the local or regional market.

Health reasons

Northern Norway suffers from lack of medical personnel (doctors, nurses, physiotherapists, etc.). This is true both of the area as a whole, and especially of sparsely populated areas. Emergency services are often far away, and complicated acute illnesses cannot be treated in remote areas. Therefore these counties, and the sparsely populated areas in particular, rely heavily on a good system of transportation. Certain types of specialized treatment are only available in large cities outside northern Norway. For example, unusual and complicated cases of cancer are treated in Oslo. Therefore, the population not only depends on a reasonably good transportation system within the region, but also from the region to other places outside it.

Administrative reasons

Much of the national public administration is located in Oslo. This applies for example to all the ministries, and since most of the services they provide are not available outside Oslo, this necessitates extensive travelling from the northernmost counties. There are no other effective means if transportation between north and south, so that the population is dependent on a reasonably priced air transportation system.

Educational reasons

Residents of northern Norway have a limited range of education programmes to choose from. The University of Tromsø and other regional institutions of higher learning do not provide programmes in all fields, and people in northern Norway often have to move to the south or go abroad to obtain their education. Thus, the provision of cheap transportation is an important way of ensuring an equal right to education.

Family and leisure reasons

Due to extensive migration many people in the northernmost counties have relatives in the south, and this means they have a great need to air travel. Families in the south have a corresponding need to travel north for family reasons.

Leisure travel is also important for people in the northernmost counties. As they very often have to travel Oslo in order to go abroad, the distance from northern Norway to Oslo represents an extra burden which the Norwegian Government wishes to minimize.

2. In the region concerned, air transport is the main mode of transport

In this regard the Ministry refers to its letter of 8 November 2000, explaining that travel by air is the preferred and often the only viable transport mode in the exempted area. This is due to the fact that the exempted area has a difficult topography and harsh climate. We would also like to point out that the distances involved are very long, for example the distance from Oslo to Tromsø equals that from Oslo to Rome.

As regards other mode of transport we would like to point out that the train stops in Bodø. The distance from Bodø to Kirkenes is 1329 kilometres. Travel by car this distance will take more than 17 hours and is therefore often not a relevant transport mode. Going by boat takes almost the same time and has also very limited numbers of departures. If time is a concern, which very often is the case, there is no relevant alternative than going by air.

3. Beneficiaries of the tax exemption

The excise duty is calculated per passenger commencing a flight liable for tax. Liability for the excise duty falls on the air carrier performing the flight. This is an indirect tax and will be calculated into the final price of the air ticket. Thus, the duty is designed place the final tax burden on the consumer of the air transport service. This is comparable to the system for the excise duty on petrol, autodiesel, etc.

As shown in our previous letter the population density in the exempted area is very low. The region is sparsely populated, even when the urban centres are included in the calculation. The average population density for the region is 3,3 people per square kilometres. This is far below the accepted limit for national regional aid of 12,5 persons per square kilometre at the NUTS III level.

Most of the final beneficiaries of the tax exemption will be residents in this sparsely populated area.

The Authority has remarked on the fact that the tax exemption is not confined to flights within or from the three northernmost counties, but also includes flights from other parts of Norway to these regions. The Ministry would like to emphasize that an exemption only for flights from the exempted area would make it far more expensive for the residents of the three northernmost countries to travel home. As shown above, they need to travel to the southern part of Norway for reasons of health, education, etc. It is also important for the welfare of the residents in the northernmost counties to have visit from and contact with their relatives in the South.

2. Aid to businesses located in certain regions – justification of the exemption

Every company in the exempted area will benefit from the absence of an air passenger tax for this area, and no single company will be discriminated against. As regards justification for the exemption applying to businesses located in the three northernmost counties, we refer to what has been said above and to our previous letter.

The Ministry does not see that Chapter 25 of the Authority’s State Aid Guidelines is relevant in the case in question.

3. Additional information

In answer to your questions regarding data/estimates on the percentage of flights which will benefit from the exemption and details regarding the air carriers which serve the routes in question, we refer to the enclosed copy of a letter of 13 December 2000 from Norwegian Air Traffic and Airport Management (NATAM).

Yours sincerely,

Torbjørn Flørenes

Deputy Director General

Heidi Heggenes

Legal adviser

Enclosure