1. A.

   Principal legislation

   • Decision of the Regional Council (DGR) No 67-7675 of 11 November 2002‘Scheme for the extension of the network for the sale of natural gas used as motor fuel. Transfer to the municipalities of funds to be allocated to companies intending to set up service stations for the sale of natural gas used as motor fuel. Time limits for the submission of applications and criteria for assessing them’;

2. B.

   Secondary legislation

   • Law No 426 of 9 December 1998‘New measures in the environmental field’;

   • Ministerial Decree of 22 December 2000‘Identification of the national gas pipelines network for the purposes of Article 9 of Legislative Decree No 164 of 23 May 2000’;

   • Ministerial Decree No 256 of 17 July 1998‘Rules on incentives for motor vehicles powered by natural gas or liquefied petroleum gas (LPG)’;

   • Ministerial Decree of 28 May 1999‘Grant of loans to local authorities by Cassa Depositi e Prestiti for financing the measures in the environmental field provided for by Law No 426 of 9 December 1998’;

   • Ministerial Decree of 5 April 2001‘Direct grants to members of the public for the purchase of electric vehicles and vehicles powered by natural gas or LPG and for setting up service stations for the sale of natural gas and LPG’;

   • Decision of the Regional Council No 13-7622 ‘Extension of the use of natural gas, LPG and other innovative means of propulsion with a low environmental impact in the public service vehicle fleet. Establishment of allocation criteria and transfer of funds to the Provinces’;

   • Decision of the Regional Council No 62-6806 ‘General criteria and arrangements for funding by the Plan for investment in local public transport in Piedmont under Law No 194/98. Allocation to the Regional Transport Directorate of EUR 9 009 895,07 under heading 25192/2002’.

The scheme concerns the extension of the network of service stations for the distribution of natural gas (methane) used as motor fuel. There are currently only 12 such stations in the territory of Piedmont, compared with 80 in Emilia-Romagna and 64 in Veneto. The number is deemed insufficient to attain the Kyoto target of reducing CO₂ emissions — as laid down in national and regional legislation — and to lessen the environmental impact of other hazardous airborne substances by reducing the level of the following pollutants in the region: (a) nitrogen dioxide; (b) fine particulates; (c) benzene. These pollutant emissions are a consequence of traffic congestion and the excessive use of a certain mix of traditional motor fuels. For this reason, the Region of Piedmont has focused its action on public and private transport, in terms of both traffic/structure of the vehicle fleet and fuel distribution.

The proposed measure is provided in the form of a grant.

The grant amounts to EUR 150 000 per service station. No intensity is indicated. Both the eligible costs and the recipients are described in Section 4 ‘Comments from Italy’.

The budget amounts to around EUR 5 million. The duration of the scheme is conditional on the budget allocation. The latter is scheduled for the years 2002, 2003 and 2004.

In its decision initiating the procedure, the Commission noted that, at first sight, trade was potentially affected as natural gas is traded internationally and service stations could be located close to the border.

The Commission stated that in the notification the Italian authorities had not clearly demonstrated that the environmental benefits which the scheme was intended to promote would materialise.

Two points raised by Decision 1999/705/EC and the subsequent Court judgment in Case C-382/99 are especially relevant for the present case.

In its decision initiating the procedure, the Commission stressed the need for correct identification of the ‘recipient’, which could be a person other than and not coinciding with the ‘service station’. That would be the case, for example, if (a) the same owner possessed or operated several service stations or (b) the same dealer applied for aid more than once. It was quite possible for a large oil company to have de facto control over service station operators by virtue of an exclusive purchasing agreement or any other agreement.

1. (a)

   dealer-owned/dealer-operated (Do/Do) service stations, where the dealer owns the service station, operates it at his own risk and is linked to the oil company (the supplier) by an exclusive purchasing agreement;

2. (b)

   company-owned/dealer-operated (Co/Do) service stations, where the dealer rents the service station, operates it at his own risk and is linked to the supplier by an exclusive purchasing agreement;

3. (c)

   company-owned/company-operated (Co/Co) service stations, where the service station is operated by employees or subsidiaries of the oil company. They bear no risk and are not free to choose their supplier.

Notwithstanding its doubts, the Commission recognised that there was an a priori presumption that any distortions of competition would indeed be limited.

The Commission also noted that the scheme was not in line with any other guidelines or frameworks.

In their comments, the Italian authorities took the view that — in order to attain the Kyoto targets, which had been embodied in both Community and Italian legislation — it was necessary to act on one of the most polluting human activities, namely road transport (mobility). CO₂, PM₁₀, PM_2.5 and NO₂ were the main pollutants produced by this activity and natural gas was the best alternative to traditional fuels. Its wider use should have an impact on public transport, public service vehicle fleets and road haulage (freight transport).

Moreover, in Piedmont, motor vehicle traffic in urban centres with more than 10 000 inhabitants was subject to limitations. In this respect, natural gas could play an important role in attaining the objective of sustainable mobility.

The claimed impact on pollutant emissions of replacing vehicles (buses, trucks, vans, etc.) powered by traditional fuels with natural gas-driven vehicles was supported by statistical evidence provided by the Piedmont regional authorities.

The Commission itself had proposed that 20 % of petrol and diesel fuel used in the road transport sector be replaced by alternative fuels, and natural gas had been identified as one of the fuels that could contribute significantly to the attainment of that objective.

In their comments, the Italian authorities took the view that EUR 150 000 per service station was the minimum level of incentive needed to stimulate and promote such investments — both when the infrastructure is built as part of an entirely new station for the supply of natural gas as motor fuel and when it is limited to a new outlet (dispenser or pump, with the annexed infrastructure) built at an existing station. The amount of EUR 150 000 was based on an estimate of the minimum incentive in a sector where profitability under normal market conditions was deemed to be still low, due to long pay-back periods and very slim profit margins. This was demonstrated by the fact that in the past 25 years only six sales outlets had been built.

In support of their arguments, the Italian authorities provided the Commission with estimates of the operating margin of an average operator, based on the costs calculated for a standard service station for the sale of natural gas as motor fuel connected to a pipeline with a normal pressure of between 5 and 12 bars. The operating margin, gross of both variable and fixed costs, amounted to EUR 0,069 per cubic metre of gas sold. Net of the variable costs, the margin fell to EUR 0,040 per cubic metre (standard margin applied by the operator), which would be further reduced by the annual overheads (staff, maintenance and administrative costs), estimated at EUR 10 000 per year.

In the example provided by the Italian authorities, natural gas accounted for only 2,51 % of the annual turnover of the service station.

• substations,

• compressors,

• damping cylinders,

• control panels,

• housings for compressors,

• refrigeration units,

• electrical substations,

• check weight twin dispensers (nozzles),

• canopies for the dispensers,

• other equipment needed for the supply of the gas and the safety of the installation.

The total cost of the above machinery/equipment (the only eligible costs) averaged around EUR 500 000, for a compression system capable of handling gas delivery pressures of between 5 and 12 bars.

Other, non-eligible costs included: the connection to the gas pipeline, the electricity grid and other public utilities (around EUR 100 000 on average, but with possible variations that greatly depended on distance and the lie of the land); the purchase of land; construction works (road links); ancillary costs (planning, acquisition of permits and licences). Such costs were entirely borne by the investor.

Although it is not necessary to analyse any further the investment costs indicated by the Italian authorities for installing an additional sales outlet for natural gas at an existing service station, since the assessment concludes that the proposed measure does not constitute State aid, the Commission considers that a maximum cost of EUR 300 000 for installing a gas distribution outlet is acceptable, on the basis of market conditions in other Member States.

Given the particular structure of Italy’s domestic supply and the strategic choices made in the past in order to diversify supplies and reduce its dependence on oil, methane (natural gas) accounted for a very significant share of the main motor fuels supplied in Italy.

The planned budget for the scheme will allow only 33 new outlets to be built. On the demand side, Piedmont has a total fleet of 5 500 methane-fuelled vehicles (0,16 % of the total). Nationwide, the figure is 330 000 vehicles (0,80 % of the total fleet).

• The range of a methane-fuelled motor vehicle was around 300 km, meaning that refuelling was only possible at a station that was within reach during opening hours (no self-service was allowed by law in Italy).

• The territorial distribution of the pipelines heavily influenced the location of the service stations since, if an outlet was to be economically viable, it had to be positioned at short distance from the closest pipeline. A map provided by the regional authorities showed the path of the two pipelines closest to the border between Italy and France: (1) the ‘Val di Susa’ pipeline linked Salbertrand to Bardonecchia, via Oulx; (2) the ‘Val Chisone’ pipeline followed the alignment of the valley between Roure and Cesana Torinese, mid-way between Sestrière and Clavière, on the French border; the two pipelines were connected through Sauze d'Oulx.

• The regional authorities of Piedmont argued that natural gas service stations in Italy were not in any way in competition with existing or future French service stations and did not distort or threaten to distort competition such as to affect trade between Member States within the meaning of Article 87(1) of the EC Treaty. On the contrary, the anticipated growth in the number of natural gas-driven vehicles in Piedmont could be expected — through cross-border traffic flows — to result in increased sales of natural gas also by non-Italian service stations, located in France or other Member States.

In conclusion, the situation described above ruled out any negative cross-border impact of Piedmont’s natural gas service stations and merely suggested that the measure would have a localised — i.e. regional — effect at present and a potential positive impact in the future.

All operators meeting the subjective and objective — such as minimum performance and safety standards, environmental protection, etc. — requirements were eligible for authorisation. The licence was issued by the competent municipality. The measure did not make any distinction based on the size or market power of the investor and was addressed to both large oil companies and independent dealers, either already operating on the market or wishing to enter it for the first time. The budget constraints made possible the construction of just 33 new outlets and the recipients would be selected by means of an open procedure (public tender).

The licensees could be either oil companies which operated under their own brand (ERG, Tamoil) or independents (so-called retisti or network operators). Based on evidence provided by the Italian authorities, 65 % of all fuel distribution outlets in Piedmont belonged to oil companies whereas 35 % belonged to independents.

Only in 10 instances had Piedmont seen the adoption of the company-owned/company-operated (Co/Co) pattern, where an oil company owns the service station and operates it itself. In none of those cases did the service station sell natural gas.

The contracts/agreements between the oil companies (the owner-licensee) and the operators’ association had been notified to and approved by the Italian competition authority.

The Italian authorities have fulfilled their obligation under Article 88(3) of the Treaty by notifying the scheme to the Commission before putting it into effect.

Article 87(1) of the Treaty states that ‘any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market’.

The scheme provides an advantage through state resources (grants of EUR 150 000 from the budget of the Piedmont Region) to certain undertakings (the licensees, owners of the service stations). The measure is therefore selective in scope. Nevertheless, based on the evidence provided by the Italian authorities after the Commission decided to initiate the formal investigation procedure, the effect on trade between Member States within the meaning of Article 87(1) of the Treaty has been demonstrated to be nil.

Trade could, however, be affected by the measure if there was competition between the Italian outlets receiving the grant from the Piedmont Region and methane outlets in another Member State. In this context, it should be stressed that the only Member State with which Piedmont has a common border is France. Most of this border is mountainous and can therefore be crossed by vehicle only through passes or toll tunnels. In addition, the outlets have to be connected to the existing pipelines within the regional borders: as mentioned above, the path of the two pipelines closest to the border between Piedmont and France cross the Alps at Bardonecchia and Cesana Torinese, which are accessible from France by the Fréjus toll tunnel and the Montgenèvre pass respectively. Contrary to the case covered by Decision 1999/705/EC, it is therefore inconceivable that a driver would cross the border in order to buy cheaper methane, especially since the range of a methane-fuelled engine is smaller than a petrol engine (300 km versus at least 600 km) and refuelling with methane is possible only during service station opening hours.

In the light of the foregoing, the Commission finds that the aid scheme notified by the Region of Piedmont for the extension of the network of service stations for the sale of natural gas used as motor fuel does not constitute State aid within the meaning of Article 87(1) of the EC Treaty,