Company Neutral Revenue Support Scheme (CNRS)
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EUROPEAN COMMISSION Brussels,16.12.2003 C(2003)4705fin Subject: State aid N 464/ 2003 – United Kingdom Company Neutral Revenue Support Scheme (CNRS) Sir, I. Procedure 1. By letter of 1 October 2003, registered at the Commission (Directorate-General for Energy and Transport) on 8 October 2003 (A/31568) the authorities of the United Kingdom notified to the Commission the above mentioned aid scheme in accordance with Article 88 (3) of the EC Treaty. The notification was registered by the Secretariat General of the European Commission on 6 October 2003 (SG(2003) A/9666) under No. N 464/2003. 2. On 15 July 2003 and on 18 September 2003, informal bilateral meetings were held in Brussels in order to discuss the envisaged aid scheme. II. Description of the aid scheme Background 3. Company Neutral Revenue Scheme (CNRS) is a new scheme in addition to the existing and previously approved Freight Facilities Grant (FFG) and Track Access Grant (TAG) schemes. The Right Hon Jack STRAW MP Secretary of State for Foreign and Commonwealth Affairs Downing Street LONDON SW1A 2AL United Kingdom Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium Telephone: exchange (+32-2)299.11.11. Telex: COMEU B 21877. Telegraphic address: COMEUR Brussels. 4. Freight Facilities Grant (FFG) is a capital grant originally designed to help companies to purchase and construct the equipment they require in order to switch the movement of freight from road to rail. The scheme was first introduced in 1974 and was authorised by the Commission in 1975.1 Grant is limited to the difference between total road costs and either the total rail costs or the imputed environmental benefit of the modal shift, if less. 5. In 1981, the scheme was extended to cover freight facilities for movements on inland waterways.2 It was further extended in 1983 to cover the then subsidiaries of British Rail: ‘Freightliner’ and ‘Sealink’.3 In 1993, the scheme was modified consequent upon the introduction of track access grant (see below) to reflect the changes wrought by railway restructuring in Great Britain. 4 The most recent changes to the scheme, to extend eligibility to freight facilities used in coastal shipping, were authorised by the Commission in 2001. 5 6. Track Access Grant (TAG), the second predecessor of CNRS was introduced in 1994, following the introduction in Great Britain of railway infrastructure charges payable to the infrastructure owner 6 for access to the network. The intended purpose of TAG was to help defray access charges for those traffics which could not even meet the short run marginal costs they imposed on the network, and thereby secure existing traffic on rail as well as attract new flows from road. Commission clearance was given in 1993.7 7. TAG as a revenue grant can be paid to support any rail traffic where there is a financial need and where the environmental benefit justifies it, on condition that the payments do not exceed the amount of money paid to Network Rail for the access to the network. TAG has been paid for many different types of rail traffic: intermodal has been the main beneficiary, but conventional and automotive traffic has also benefitted. 8. According to the British authorities, rail currently has a market share of some 25% for the movement of deep-sea and short-sea containers to inland destinations. The main rail haulier in this sector has been ‘Freightliner’with a 97% market share. However, other rail hauliers have started to make incursions in this sector. Rail's share of the purely domestic intermodal market has been and remains very small, freight on long distance corridors (so called ‘trunk’ movements), but the development of longer distance corridors for trunk hauls is seen as a priority in a sector with high potential for growth. EWS and Direct Rail Services (DRS) both operate in this sector, although the volumes moved are small. 8 1 S/75-026825. 2 SG(81) D/14170. 3 State aid case N 288/82 (Commission reference SG(83) D/1218). 4 State aid case N 162/93 OJ C 335, 13.12 1995 5 State aid case N 649/01, OJ C 45, 19.12.2002, p.2. 6 Now ‘Network Rail’, then ‘Railtrack’. 7 State Aid case N 162/93. 8 There are currently 4 rail freight operating companies who move intermodal traffic within the British rail market: (1) Freightliner: Formed by British rail and privatised in 1997, Freightliner currently haul 2 9. Hence, Freightliner is the main recipient under the current TAG aid scheme. Freightliner’s TAG contract was awarded in 1996 for a period of 5 years and, on its expiry, a new contract for 3 years was awarded. This contract expires in 2004. The aid takes the form of a large ‘block’ grant paid against the movement of a minimum number of containers between regions and smaller variable elements paid for individual movements between ports and terminals. Other operators also have been awarded TAG for specific flows of intermodal traffic, which is paid against individual movements. 10. However, the British authorities no longer consider TAG as a suitable form of grant- aid in the containerised sector. This is, first, because TAG requires a bespoke assessment and contract for each rail operator based on their specific arrangements and costs. That could lead to different grant rates being set for identical flows simply because of differences between rail operators which, in turn, would perpetuate inefficiencies and distort the market. The situation has become more acute as other railway undertakings have moved onto the domestic intermodal market. Second, because TAG is capped at the level of the track access charges paid to Network Rail, the support seems to be insufficient to incentivise the use of rail on short and middle distance flows. Finally, because TAG can only be paid to rail operators, and because rates are not published, it does not incentivise customers and shippers to consider rail as an alternative and therefore does not support growth in their usage of rail freight. 11. In the view of the British authorities, CNRS will enable grant to be paid in a more transparent and non-discriminatory manner, and encourage growth. For non- intermodal traffic, the costs are not homogenous and will vary considerably depending on the specific origin and destination or volume. For the time being, TAG will continue to be available in principle for these flows. 12. In summary, it may be said that Freight Facilities Grant is unaffected by the proposed CNRS scheme. However, CNRS will replace TAG for intermodal traffic, although it will remain available for all other commodities.9 The following tables give an overview on the historic and proposed future expenditure on FFG (table 1), TAG (table 2) and on the overall budget for all three aid schemes (table 3): 97% of the containers moved by rail within the UK and operate a number of inland terminals. (2) EWS (English Welsh & Scottish Railway): The remainder of British Rail freight was sold to EWS and essentially consisted of the movement of bulk commodities. However, EWS have recently begun to handle increased amounts of containerised traffic from ports. (3) GB Railfreight: The newest freight operating company within the UK currently runs two commercial intermodal services from Felixstone on behalf of Medite Shipping. (4) DRS (Direct Rail Services): The subsidiary of British Nuclear Fuels Ltd (BNFL) predominantly transports nuclear waste by rail. However, DRS have recently commenced commercial services with Malcolm Warehousing and Distribution to transport domestic intermodal traffic between Grangemouth and Daventry International Railfreight Terminal. 9 See table 7. 3 (1) Freight Facilities Grant (FFG) Year 94- 95- 96- 97- 98- 99- 00- 01- 02- 03-2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 estimated England 2.80 4.00 2.77 6.96 9.46 5.81 19.88 n/a n/a n/a (Rail and water) England n/a n/a n/a n/a n/a n/a n/a 32.69 27.56 20.00 (Rail) England n/a n/a n/a n/a n/a n/a n/a 4.00 5.50 6.50 (Water) Scotland 0.00 0.00 0.00 0.00 0.00 6.10 2.40 8.50 2.60 12.00 (Rail and Water) Wales 2.10 0.20 0.40 0.60 0.10 0.20 0.00 0.00 0.44 1.20 (Rail) TOTAL 4.90 4.20 3.17 7.56 9.59 12.11 22.28 45.19 36.10 39.70 FFG (£ m) Table 1 (2) Track Access Grant (TAG) Year 94- 95- 96- 97- 98- 99- 00- 01- 02- 03-2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 estimated England 0.00 0.00 12.23 21.34 18.91 16.74 13.88 19.89 20.77 20.00 Scotland 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.50 TOTAL 0.00 0.00 12.23 21.24 18.91 16.74 13.88 19.89 21.07 20.50 TAG (£ m) Table 2 (3) FFG, TAG and CNRS Year 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11 England 14.00 14.00 14.00 14.00 14.00 14.00 14.00 (Rail FFG and TAG) England 22.00 23.00 24.00 19.00 20.00 21.00 22.00 (CNRS) England 12.00 12.00 12.00 12.00 12.00 12.00 12.00 (Water FFG) Scotland 14.60 15.40 15.00 15.00 15.00 15.00 15.00 (Rail and Water FFG, and TAG) Wales 1.00 1.00 1.00 1.00 1.00 1.00 1.00 FFG, 63.60 65.40 66.00 61.00 62.00 63.00 64.00 TAG & CNRS (£ m) Table 3 (The table shows the budget projections for FFG, TAG and CNRS based on current best information.