Subject: State aid, Notification of a new national direct transport aid scheme.

In accordance with Article 1(3) of Protocol 3 to the Surveil­lance and Court Agreement, the Norwegian Government hereby notifies to the EFTA Surveillance Authority of our intention to implement a new direct transport aid scheme, cf. enclosed notification form (annex I). Reference is made to the EFTA Surveillance Authority’s decision of 4 November 1998 (Dec. No 316,317/98/COL) in the field of State aid, where the Authority’s new Guidelines on national regional aid is adopted. The proposed new direct transport aid scheme is in accordance with Annex XI of the State aid guidelines for regional aid: Aid to offset additional transport costs in regions qualifying for exemption under article 61(3)(c) on the basis of the population density test.

EXISTING TRANSPORT AID SCHEMEs

Norway currently has two notified transport aid schemes in operation. The indirect transport aid scheme (differentiated social security contribution) was approved by the Authority 22 September 1999 (228/99/COL) covering as eligible areas the counties Finnmark, Troms, Nordland, Sogn og Fjordane and parts of the counties Nord-Trøndelag, Sør-Trøndelag, Møre og Romsdal, Hordaland, Rogaland, Vest-Agder, Aust-Agder, Telemark, Buskerud, Oppland and Hedmark. The direct regional transport aid administrated by the county municipalities, comprises the counties of Finnmark, Troms, Nordland and parts of Nord-Trøndelag. This scheme was approved by the Authority 19 December 2001 (418/01/COL).

2. THE NEW TRANSPORT AID SCHEME

Aim of the scheme

Extra transport costs is one of the permanent disadvantages or costs of distance related handicaps for firms located in peripheral areas and within a sparsely populated region compared to firms located in central areas.

The aim of this new scheme is thus partly to offset the competitive disadvantages which additional transport costs represents for enterprises situated long distances from their markets.

Eligible regions

The following counties are included in the area eligible for regional transport aid[LHA1] :

• In Troms county, the municipalities of Harstad, Tromsø, Kvæfjord, Skånland, Bjarkøy, Ibestad, Gratangen, Lavangen, Bardu, Salangen, Målselv, Sørreisa, Dyrøy, Tranøy, Torsken, Berg, Lenvik and Balsfjord.
• Nordland county.
• In Nord-Trøndelag county the municipalities of Leka, Nærøy, Vikna, Flatanger, Fosnes, Overhalla, Høylandet, Grong, Namsos, Namsskogan, Røyrvik, Lierne, Snåsa, Inderøy, Namdalseid, Verran, Mosvik, Verdal, Leksvik, Meråker and Steinkjer.
• In Sør-Trøndelag county, the municipalities of Hemne, Snillfjord, Hitra, Frøya, Ørland, Agdenes, Rissa, Bjugn, Åfjord, Roan, Osen, Oppdal, Rennebu, Meldal, Røros, Holtålen, Midtre Gauldal, Selbu and Tydal.
• In Møre og Romsdal county, the municipalities of Kristiansund, Vanylven, Sande, Herøy, Ulstein, Hareid, Norddal, Stranda, Stordal, Rauma, Nesset, Midsund, Sandøy, Aukra, Eide, Averøy, Frei, Gjemnes, Tingvoll, Sunndal, Surnadal, Rindal, Aure, Halsa, Tustna and Smøla.
• In Sogn og Fjordane county, the municipalities of Gulen, Solund, Hyllestad, Høyanger, Vik, Balestrand, Leikanger, Sogndal, Aurland, Lærdal, Årdal, Luster, Askvoll, Fjaler, Gaular, Jølster, Bremanger, Vågsøy, Selje, Eid, Hornindal, Gloppen and Stryn.

The proposed areas eligible for direct transport aid are within the eligible area for regional aid, approved by the Authority 17 December 1999 (327/99/COL), except from the islands of Herøy, Ulstein, Hareid and Aukra in Møre og Romsdal.

Eligible types of transport

Under the national transport aid scheme aid is granted in relation to:

• Transport of goods, which will undergo processing at the premises of the consignee, to enterprises located in the area eligible for transport aid
• Transport of goods from enterprises located in the eligible area.

Calculation of the regional direct transport aid

Aid may only be given in respect of the extra cost of transport of goods inside national boundaries and calculated on the basis of the direct and most economical option of transport mode between the place of production and processing and commercial outlet. (Cf the enclosed proposed national guidelines). When transporting goods to destinations in Sweden and Finland, the calculation of total transport distance includes also the distances within Sweden and Finland. However, aid is only given to the transport costs occurred within the national borders.

Only documented transport costs may form the basis for calculating the aid. The transport aid is calculated as a percentage of the total transport costs, reflecting the real extra transport costs in the assisted area. In this context, the transport cost refers to reasonable costs, which is specified in a consignment note or equivalent document and which is dependent on the transport distance inside national boundaries, weight of goods and type of goods and on freight charges and other charges which may be attributed to the actual transport. For further details, see annex II.

Transport compensation is given on the basis of applications from the firms, the year after the transport costs occurred. The aid intensity will be differentiated according to 2 geographical eligible transport zones and according to the transport distance. To be eligible for transport aid the transport distance for the actual transportation has to be more than 350 km. For transportation distance of more than 700 km the aid intensity increases in the different transport zones.

The geographical zones are:

Zone 1: Eligible areas in Troms county, Nordland and eligible area in Nord-Trøndelag.

Zone 2: Eligible areas in Sør-Trøndelag, Møre og Romsdal and Sogn og Fjordane.

Table 1 below shows the aid intensity for the different zones and different transport distances:

Table 1 Aid intensity

The direct transport aid is paid as a grant partly to cover the costs for transport of goods by rail, road or sea. For sea transport, see the enclosed national guidelines (Annex 2).

Duration of the scheme

1.1.2004 – 31.12.2006

Budget

The budget for the transport aid scheme will depend of the length of the transition period for the differentiated social security contribution according to the cumulation rules (2.7. below). After the transition period the budget is estimated to approximately NOK 200 mill per year.

Cumulation

By setting maximum aid intensity as a percentage of the total transport costs, the Norwegian Government will ensure that firms are not being overcompensated, according to Annex XI of the Authority’s State aid guidelines on National regional aid. If companies also have a reduced social security tax the advantages of this reduction in the tax has to be deducted from the transport aid grant calculated according to table 1.

Sectors exempted from the scheme

The following economic activities cannot receive regional transport aid:

a) The scheme does not apply to transport or transmission of the products of businesses without an alternative location;

• Production and distribution of electricity
• Extraction of crude petroleum and natural gas
• Service activities incidental to oil and gas extraction excluding surveying
• Mining and metal ores
• Extraction of the industrial minerals nepheline syenite and olivine.

b) Industries covered by specific sectoral rules

The following sectors may not receive regional transport aid due to specific sectoral rules:

• Enterprises covered by the Act referred to in point 1a and b of Annex XV to the EEA agreement (on aid to the steel industry and aid to shipbuilding).

Sensitive sectors, which have to be subject to more specific notification requirements

Regional transport aid given to the motor vehicle industry or industrial production of synthetic fibres will be subject to prior notification and approval by the Authority in accordance with the State aid guidelines.

Geographical scope

The designation of the area for regional transport aid is based on Annex XI of the Authority’s State aid guidelines on regional aid. Regional transport aid may be given in areas qualifying for regional aid on the basis of the population density test.

The area for regional state aid in Norway covers 25,8 % of the total population (dec no 327/99/COL). The proposed area for the new national transport aid covers only 16,01 % of the total population. The whole region proposed eligible for regional transport aid qualifies for regional state aid for the period 2000–2006.

Regarding the areas qualifying for regional transport aid, it is stated in Annex XI:

Aid may be given only to firms located in areas qualifying for regional aid on the basis of the new population density test. Such areas will be made up essentially of NUTS level III geographic regions with a population density of less than 12,5 inhabitants per square kilometre. However, a certain flexibility is allowed in the selection of areas, subject to the following limitations:

• flexibility in the selection of areas must not mean an increase in the population covered by transport aid;
• the NUTS III parts qualifying for for flexibility must have a population density of less than 12,5 inhabitants per square kilometre;
• they must be contiguous with NUTS III regions which satisfy the low population density test;
• their population must be low compared with the total coverage of the transport aid

Four of the counties proposed eligible for regional transport aid meet the general population density criterion of less than 12,5 persons per square kilometre on NUTS level III geographic regions. These are Troms, Nordland. Nord-Trøndelag and Sogn og Fjordane. In Nord-Trøndelag and Sogn og Fjordane only those municipalities covered by the regional aid map is proposed eligible for regional transport aid.

The population covered by the existing indirect transport aid scheme is 23,55 % (year 2002) compared to a population coverage of 16,01 % in the new proposed area. This is in accordance with the first condition in the fifth indent in Annex XI of the State aid guidelines for National regional aid.

The counties of Sør-Trøndelag and Møre og Romsdal have a population density above 12,5 inhabitants per square kilometre. The parts of these counties proposed as eligible for the new transport aid scheme, have a population density well below 12,5 inhabitants per square kilometre. The population density in the proposed eligible area in Sør-Trøndelag is 4,1 inhabitants per square kilometre and in Møre og Romsdal 9,6 inhabitants per square kilometre. Hence, the requirements of the second condition in the above mentioned indent of Annex XI to the State aid guidelines for National regional aid are met..

The areas must further, according to Annex XI, be contiguous with NUTS III regions that satisfy the low population density test. This condition is also met.

The population in Sør-Trøndelag and Møre og Romsdal which are proposed eligible for transport aid must also, according to Annex XI, remain low compared to the total coverage of the transport aid. The total population of the municipalities in the two counties that are included in the proposed area is 179 792 persons. This is 24,9 % of the total population coverage in the new national transport aid scheme. This last condition is also met.

COMPATIBILITY of the aid scheme with the eea agreement.

In accordance with the State aid guidelines it is necessary to document that regional transport aid is confined to regions needing transport compensation on objective grounds and that transport aid serves to compensate for the additional transport costs only (paragraph 24.4 (26)) first indent of Annex II of the guidelines). The existence of extra high transport costs in remote areas in Norway was confirmed by a study undertaken by the Institute of Trans­port Economics in Norway (TØI) 1Karl-Erik Hagen (1996): “Industribedrifters transportvolum og kostnader”, Institute of Trans­port Economics in Norway (TØI), nr 0-2273 in 1996 for the Ministry of Local Government and Regional Development. The study covered 36 different, randomly sampled companies in various parts of the country. The extra transport costs were calculated on the basis of information given by the firms.

The study demonstrated that firms located in the most remote and sparsely populated areas did have a substantial disadvantage compared to firms in more central areas, due to higher direct and indirect transport costs.

The same institute as mentioned above will finalize a survey of extra transport costs in the proposed area for transport aid during May 2003. The new survey will cover 36 enterprises including firms in the area not proposed eligible for the new national transport aid. Transport costs in areas not proposed eligible for transport aid will be established as reference transport costs compared to extra transport costs in areas proposed eligible. This survey will demonstrate the existence of extra transport costs in the area eligible for regional transport aid and may influence the proposed aid intensities in the transport aid zones.

Concluding remarks

If the Authority needs any further information about the scheme, please do not hesitate to bring these forward as soon as possible.

Yours sincerely,

Pål Erik Holte (b.a.)

Deputy Director General

Enclosures

• Annex III – proposed area for transport aid
• • Annex IV – kart over notifisert transportstøtte