NML Serie - Samenvatting 28 - Studie 28 by Nederland Maritiem Land

DUTCH MARITIME RESEARCH, DEVELOPMENT AND INNOVATION EXPENDITURE

FIRST MARINE INTERNATIONAL LIMITED

March 2005

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network

DUTCH MARITIME NETWORK series 1 1. De Nederlandse Maritieme Cluster: literatuuronderzoek en plan van aanpak economische impact studies 2. De Maritieme Arbeidsmarkt: vraag en aanbod van zeevaartkennis 3. De Nederlandse Scheepsbouw- en toeleveringsindustrie: economische betekenis en structuur 4. De Nederlandse Offshoresector: economische betekenis en structuur 5. De Nederlandse Binnenvaartsector: economische betekenis en structuur 6. De Nederlandse Waterbouwsector: economische betekenis en structuur 7. De Koninklijke Marine: economische betekenis en structuur 8. De Nederlandse Visserijsector: economische betekenis en structuur 9. De Nederlandse Watersportindustrie: economische betekenis en structuur 10. De Nederlandse Maritieme Dienstverlening: economische betekenis en structuur 11. De Nederlandse Maritieme Toeleveranciers: economische betekenis en structuur 12. De Nederlandse Zeehavensector: economische betekenis en structuur 13. De Nederlandse Maritieme Cluster: economische betekenis en structuur 14. Het Maritieme Clustermodel: modellering en scenarioanalyse 15. De Nederlandse Maritieme Cluster: beleidsaanbevelingen 16. De Innovativiteit van de Nederlandse Maritieme Cluster 17. Maritieme Websites en E- Business: een verkenning 18. Maritiem Kapitaalforum: onderzoek naar de werking van de kapitaalmarkt in de sector van maritieme toeleveranciers 19. An International Shipping Company in the Netherlands: the tax perspective 20. E-business in de Maritieme Cluster: visies, strategieĂŤn, activiteiten 21. De arbeidsmarkt in de Nederlandse Maritieme Cluster; een overzichtsstudie 22. Leader Firms in de Nederlandse Maritieme Cluster: theorie en praktijk 23. De Koninklijke Marine als maritieme leader firm 24. De Nederlandse maritieme cluster: monitor en dynamiek 25. European Maritime Clusters: Global trends, theoretical framework, the cases of Norway and the Netherlands, policy recommendations 26. a. Rules for Commercial Cruising Vessels b. Voorschriften voor Commercial Cruising Vessels 27. Monitor Maritieme Arbeidsmarkt 2003 28. Dutch Maritime Research, Development and Innovation Expenditure Foundation Dutch Maritime Network The Foundation was founded on June 27, 1997 with the objective to promote and strengthen the maritime cluster of the Netherlands. The Members of the Board of the Foundation are N. Wijnolst (chairman), G.W. Bos (vicechairman), F.G.M. Conyn (secretary and treasurer) and furthermore in alphabetical order, D. Alewijnse, K. Damen, C.J. van den Driest, C. van Duyvendijk R. van Gelder, R.A.A. Klaver, G.J. Kramer, P.J.H.M. Loonen,T.G. Muller, S.M.T. Schipper, D.P.M. Verbeek. The Managing Director of the Foundation is H.P.L.M. Janssens. The address of the Dutch Maritime Network is Beurs-World Trade Center, Beursplein 37 P.O. Box 30145, 3001 DC Rotterdam, the Netherlands. tel. +31 (0)10-205.27.20, fax +31 (0)10-205.53.07, e-mail: info@dutch-maritime-network.nl, website: forum.dutch-maritime-network.nl 1

Each book has an English summary, see also http://forum.dutch-maritime-network.nl, communicatie - NML serie -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network

Dutch Maritime Research, Development and Innovation Expenditure

First Marine International Limited

published by Dutch Maritime Network

March 2005

Published and distributed by: DUP Satellite (an imprint of Delft University Press) Prometheusplein 1 2628 ZC Delft the Netherlands Tel: +31 (0)15-278.51.21 Fax: +31 (0)15-278.16.61 E-mail: info@library.tudelft.nl Report carried out by: First Marine International Limited

CIP-DATA KONINKLIJKE BIBLIOTHEEK, THE HAGUE, THE NETHERLANDS Dutch Maritime Research, Development and Innovation Expenditure DUP Satellite ISBN: 90-407-2585-3 References: Shipping, Shipbuilding, Marine Equipment Supply, Yacht building, Ship repair, Maritime Network, Maritime Cluster, European Union, Maritime Research, Development, Innovation. Copyright ÂŠ 2005 Stichting Nederland Maritiem Land All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system without written permission of the owner of this copyright. Permission may be obtained at the following address: Stichting Nederland Maritiem Land, P.O. Box 30145, 3001 DC Rotterdam, The Netherlands; e-mail: info@dutch-maritimenetwork.nl, website forum.dutch-maritime-network.nl.

Dutch Maritime Research, Development and Innovation Expenditure CONTENTS FOREWORD.............................................................................................................7 1 1.1 1.2

BACKGROUND AND AIMS...........................................................................9 Background.....................................................................................................9 Aims of this publication ...............................................................................10

2 ESTIMATE OF R,D&I EXPENDITURE IN THE NETHERLANDS’ SHIPBUILDING INDUSTRY ...............................................................................13 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3

Introduction ..................................................................................................13 Executive Summary......................................................................................13 Methodology for prototype classification ....................................................14 Innovation in the Netherlands ......................................................................15 Estimate of R,D&I expenditure....................................................................18 Summary of expenditure ..............................................................................22 Prediction of future contract-related expenditure.........................................22 GUIDELINES ON MEASURING R,D&I EXPENDITURE ......................25

3.1 3.2 3.3

What is innovation? ......................................................................................25 What costs are eligible?................................................................................26 Other limitations ...........................................................................................27

3.4

Reporting of innovation costs ................................................................................ 28

APPENDIX 1 – SUMMARY OF DATA COLLECTED ........................................31 APPENDIX 2 – DETAILED ANALYSIS OF OUTPUT ........................................33 APPENDIX 3 – FRAMEWORK ON STATE AID TO SHIPBUILDING..............35 APPENDIX 4 – DRAFT AID SCHEME .................................................................41

FOREWORD The design, construction, building and operation of ships requires many innovative inputs from various companies and institutions within the maritime cluster. Due to the often incremental nature of innovations and the fact that almost every new ship is a prototype, reporting on the investment in maritime research, development and innovation is hardly existent. “Out of sight, out of mind” is an expression that is also applicable to the maritime R,D&I in comparison with other capital goods sectors, like the automobile and aeronautics industries. These latter industries spend vast amounts of money on the development of a single prototype, and they are therefore entitled to generous government funding for R,D&I expenditures. In order to understand and measure the extent of maritime R,D&I expenditure in the Dutch maritime cluster, the British consultant First Marine International Ltd has been asked to assist the shipbuilding industry in a first broad assessment of the maritime R,D&I expenditure in the Netherlands. The results of this major effort are presented in this report. It demonstrates the substantial investment in maritime R,D&I which has never been measured before. And this investment represents only a part of the total R,D&I spending in the maritime cluster, as the investments in inland shipping, yachting, offshore and marine equipment sectors are not yet included in detail. The methodology applied in the study is based on accepted standards within the European Union. It was developed by the European shipbuilders association CESA and successfully used to demonstrate to the European Commission the extent of R,D&I in shipbuilding. Measuring the effort in research, development and innovation is not that easy, as the administrative structure of companies is not geared to it. Therefore it has been decided to add guidelines to the report of Dutch R,D&I in order to explain the methodology to the companies that are not yet involved in the measurement process. We are confident that the total investment in Dutch maritime R,D&I compares favourably to the other capital goods industries. R,D&I has to be visible so that the maritime cluster will be for ever “in the picture” of the relevant policymakers. Only then the board of the Dutch Maritime Network will rest its case, and not a second sooner. Prof.dr.ir. Niko Wijnolst Chairman Dutch Maritime Network Rotterdam, March 2005

BACKGROUND AND AIMS

1.1 Background Development of the competitiveness of the shipbuilding industry in Europe is being led by a programme called “LeaderShip 2015”, promoted and run by CESA. The aim of this programme is to lead the industry into a globally competitive position by 2015 through investment in performance improvement. Central to the programme is the importance of research, development and innovation (R,D&I) to develop and maintain a technological leadership in the European industries. It is expected that significant expenditure on R,D&I will be made in the coming years by the shipbuilding, repair, conversion and supporting industries in Europe. Until recently the shipbuilding and related industries had been disadvantaged when compared to other industries in that much of the R,D&I effort undertaken has not been eligible for government support. The reason for this is that rules for support2 (including those enforced by the EU) generally state that financial assistance can only be granted for R,D&I relating to the development of a prototype. Part of the definition of a prototype is that it will not be sold and this condition can almost never be met in the case of shipbuilding: prototypes are almost always developed as part of a commercial contract. With this in mind, a CESA Working Group submitted a report to the Competition Directorate of the European Commission in 2003 setting out the case for a change in the rules to permit shipbuilding prototypes to be treated as a special case. The Commission accepted this report and published a new “Framework on State Aid to Shipbuilding” at the end of December 20033. This framework permits support for R,D&I to be granted in shipbuilding, even though ships do not fulfil the requirements relating to prototype definitions. The framework was further clarified by a second informal document, known as the “Draft Aid Scheme”4, negotiated between CESA and the Competition Directorate. The Draft Aid Scheme was finalised and published in June 2004. That document presents a detailed review of how the aid permitted by the framework will work. The framework and the Draft Aid Scheme together set out the rules relating to state aid for R,D&I activities in shipbuilding and related industries. The Draft Aid Scheme is based on a much simplified definition of R,D&I activities than was used in the original CESA Working Group report, which in turn was based on Frascati Manual definitions1. This is necessary because of the complexity of the shipbuilding process and practicalities of assessing costs relating to R,D&I activities in shipbuilding. Against this background, at the end of 2004 the Dutch Maritime Network (DMN) concluded a study on R,D&I in the Netherlands, the aim of which was to evaluate the total 2

International competitive rules relating to R,D&I are set out in the OECD’s “Frascati Manual”, which provides agreed definitions for R,D&I activities and rules relating to provision of support. The Frascati Manual was created in 1963. The latest update (the sixth) was published in 2002. 3 The framework is the latest in a series of directives dealing with state aid to shipbuilding and repair. In addition to R,D&I, it includes provisions relating to closure aid, employment aid, export credits, development aid and regional aid. 4 “Draft aid scheme for the granting of innovation aid to the shipbuilding industry according to section 3.3 1 of the framework on state aid to shipbuilding”. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network 9

level of expenditure on these activities. The scope of this work was slightly wider than is covered by the provisions of the Draft Aid Scheme, including ship types that are not within the scope of the state aid framework. The aim was to estimate the total level of expenditure on R,D&I in the country, rather than only that which is eligible for support within EU rules. (The ship types not included within the framework are non-seagoing ships, military ships and yachts). The results of the study clearly show that the industry in the Netherlands can be regarded as being at the forefront of innovative shipbuilding. The estimate was completed on the basis of limited data, however. R,D&I costs were supplied for a limited number of contracts and no data was provided on expenditure on process innovation, which had to be estimated from other sources. In addition to this, the study also set out to assess the innovation expenditure from supplier industries within DMN’s network, specifically ship owners, equipment manufacturers and consultancy companies. Very little information was collected from these sectors and no means of extrapolating the data to cover the entire industry was found. Because work commenced before the Draft Aid Scheme was published, the study was also undertaken according to the old definitions of R,D&I activity, not the simplified definitions as discussed in the guidelines for measuring innovation expenditure presented in this publication. Comparisons made with previous CESA results however, which were based on the same definitions, are valid. Part 1 of this publication presents the results of DMN’s 2004 study and Part 2 presents guidelines on the recording of innovation costs. These guidelines are based on the “Framework on State Aid to Shipbuilding” and the “Draft Aid Scheme” discussed above. These are referred to hereafter as the “framework” and the “DAS” respectively and the documents concerned are included in the appendices to this publication5.

1.2 Aims of this publication Innovation will be at the forefront of the development of the shipbuilding and repair industries in Europe in the coming decade. This will be a long-term effort to develop the competitiveness of the industries, for which industry members themselves must take responsibility. The overall goal of the work undertaken so far by DMN has been to stimulate companies to develop a lead in this field both within Europe and globally. Specifically, the aims of this publication are as follows. !

To demonstrate the importance of R,D&I expenditure in the Dutch Maritime Cluster.

To promote the development of an improved measurement of the value of innovation in the Dutch maritime industries.

It should be noted that at the time of preparation of this publication, the provisions of the framework and the DAS are still being interpreted and changes in the understanding of the provisions are likely to occur as these interpretations are made. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------10 Dutch Maritime Network

To provide a format for the discussion of innovation between companies and with external agencies, such as the Ministry of Economic Affairs.

To stimulate the proliferation of innovation effort in the Netherlands.

To provide a standard framework to structure the internal and external reporting of innovation expenditure by companies which is consistent with the framework and with the industries of other member states of the EU.

To better quantify the valuable work being undertaken by Dutch companies so that this can be communicated to external organisations.

To promote communication within the Network on the subject of innovation.

ESTIMATE OF R,D&I EXPENDITURE IN THE NETHERLANDSâ&#x20AC;&#x2122; SHIPBUILDING INDUSTRY

2.1 Introduction This report has been prepared at the request of the Dutch Maritime Network (DMN) to estimate research, development and innovation (R,D&I) expenditure by the industries associated with shipbuilding in the Netherlands. First Marine International (FMI) has led the project and has been responsible for the analysis of data, using experience gained in this subject through earlier work on R,D&I budgets for CESA. Data collection has been undertaken by the Foundation for Shipyard and Industry Development (BOS) and information on the output from Dutch shipyards has been received from the Netherlands Shipbuilding Industry Association (VNSI). Other input has been provided by Holland Marine Equipment (HME) and the Association for Maritime Research and Consultancy (BMOC). The wide-ranging brief for the study required a more detailed analysis than has been undertaken previously on this subject. The study covers the full range of ships produced by Dutch shipyards, including navy, offshore and non-seagoing ships. This is wider than the normal view of R,D&I expenditure, which is limited to seagoing commercial ship production because of the scope of the EU directive relating to this subject. In addition, the study set out to consider all branches of the industry including shipbuilding yards, ship repair yards, equipment suppliers, ship owners and research companies. Data has been collected through a questionnaire survey. This process has proven to be difficult. In some sectors of the industry very little information has been collected, for example for ship owners and research companies, whilst in other areas, in particular the marine equipment sector, there is no way to link the limited data submitted to shipbuilding production and therefore to extrapolate the information collected to the industry as a whole. Notwithstanding this, a significant amount of valuable information has been collected from the shipbuilding industry, which is analysed in this report. A summary of the data collected is given in appendix I.

2.2 Executive Summary 1. Analysis of the output from the Dutch shipbuilding industry between 2000 and 2004 confirms that the output contains a higher proportion of innovative ships than is seen on average in European shipbuilding. For the past three years more than half of the output of the Dutch shipbuilding industry has been classed as a prototype or partial prototype. 2. The data submitted in questionnaire returns shows an impressively high level of innovation and consequential risk in products produced in Dutch shipyards. 3. In the five years analysed, contract-related R,D&I expenditure in Dutch shipyards (excluding mega-yacht building) is estimated to have averaged â&#x201A;Ź152.9 million per annum. Expenditure has been increasing over time as the output from the industry has become increasingly based on innovative ship types. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network 13

4. The mega-yacht section of the industry declined to provide data in support of the study. An estimate of the level of contract-related expenditure has therefore had to be made on the basis of third party data. This estimate indicates an average additional contract-related expenditure of €9.3 million per annum, increasing over time as the output of the industry increases. 5. The conversion sector of the repair industry also undertakes contract-related R,D&I work, estimated to total around €2.3 million per annum. 6. It is estimated that the level of expenditure on process-related R,D&I, including shipbuilding and repair technology development, should be between €12 and €20 million per annum. The actual expenditure is not known. 7. The total estimated expenditure over the past five years ranges from €133.7 million to €231.6 million per annum, with the average being €180.5 million. These values assume the level of process-related expenditure indicated in 6 above.

2.3 Methodology for prototype classification The level of innovation in Dutch shipbuilding has been classified according to protocols developed by the CESA working group on innovation. This work takes into account the eligible costs for R,D&I aid in shipbuilding according to the directive published by the EU. Three classes of ship are defined which relate to the likely intensity of R,D&I expenditure. The three types, in descending order of intensity, are prototypes, partial prototypes and sister ships. Sister ships are repeats of previous ships in a series and are judged to attract no eligible R,D&I expenditure. R,D&I expenditure therefore relates to prototypes and partial prototypes and the classification of these ships in Dutch shipbuilding has been an important part of this work. The definitions for classification of the three types are summarised in the following diagram. One off

New Type

Series

Existing type

Lead in a new type

Prototype

Lead in an existing type

Follow on

Sister

Partial prototype

Figure 2.1 – Classification of ships in relation to R,D&I intensity -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------14 Dutch Maritime Network

The decisions made to classify ships are as follows. 1.

Is the order a one-off or series?

If one-off is this new ship type for the yard or is it significantly different to previous orders. If new or significantly different, it is classed as a prototype. If similar to previous orders (existing type), it is classed as a partial prototype.

If the order is part of a series, the lead ship in a series is classed as a prototype if the series is a new type or significantly different to previous types produced by the shipyard. The lead ship in a series that is similar to previous series is classed as a partial prototype and follow-on ships in a series are classed as sisters.

A detailed evaluation of the output of the Dutch shipbuilding industry between 2000 and 2003 has been undertaken based on a database of 443 ships (excluding mega yachts, which are not counted in the database) completed over this period, provided by VNSI. In some cases it is not clear whether a ship may be a sister of a ship completed prior to 2000 that is not included in the database. In these cases, the output of the shipyard concerned prior to 2000 has been examined using the Lloydâ&#x20AC;&#x2122;s Register database. This has enabled all ships in the VNSI database to be reliably classed within the protocol established by the CESA working group. Some very interesting results relating to the Dutch shipbuilding industry emerge from this analysis, as described below.

2.4 Innovation in the Netherlands The data collected through questionnaire returns confirms the commonly held view that the Dutch shipbuilding industry concentrates on technically sophisticated ship types. The innovations listed by respondents and the risks involved in developing new and innovative products are significant. The innovations described include the development of novel ship types, innovations in hull design and development of innovative systems6. Risks include both technical and economic elements: technical in that the innovative nature of many of the projects described includes an inherent risk of technical failure, and economic in that the ships produced with significant technical innovations may fail to achieve contract specifications. Table 2.1 presents a summary of the distribution of output from Dutch shipbuilding between 2000 and 2003, based on VNSIâ&#x20AC;&#x2122;s database. Output is reported by CGT to represent work content, and the table shows the distribution of innovation by the amount of work done. The table also includes comparative figures for the distribution of shipbuilding orders in EU countries as a whole in 2002, taken from the analyses done by CESA, to indicate how Dutch shipbuilding compares to the average in Europe. 2002 was taken as the base year for the CESA work and is regarded as representative of the average.

The industry has requested that the information provided describing innovations is not listed in this report.

Industry

Year

Dutch7 shipbuilding

All EU (> 500 GT)8

2000 2001 2002 2003 Average 4 years 2002

Total output (CGT)

Proportion of output categorised as:

543,785 493,070 461,675 351,070

17% 10% 7% 23%

Partial prototype 20% 25% 44% 30%

462,400

14%

29%

57%

1,669,184

20%

60%

Prototype

Sister ship 63% 65% 48% 48%

Table 2.1 â&#x20AC;&#x201C; Innovation in Dutch shipbuilding compared to EU

The average proportion of innovative ship types (prototypes or partial prototypes) in Dutch shipbuilding over the four years evaluated is marginally higher than indicated for the EU industry as a whole in 2002. In 2002 and 2003, however, the proportion has been significantly higher, showing an increase in the proportion of innovative work undertaken by Dutch shipyards. Whilst output can be seen to decline in terms of CGT over the four years shown in Table 2.1, in 2002 and 2003 over half the output of the industry was made up of innovative ships. The proportion of prototypes in 2003 can be seen to be particularly high, reflecting the technically sophisticated nature of the output in that year. This trend is set to continue in 2004. Table 2.2 shows the expected delivery of the orderbook from Dutch shipyards as it stands at the time of writing this report, using information from VNSI. Output in 2004 is anticipated to be the highest for five years and orders taken for 2005 already exceed the total output in 2003.

7 8

Source VNSI data. Source: CESAâ&#x20AC;&#x2122;s analysis of innovation in EU shipbuilding, 2004.

2004

Type Prod/chem. Carrier General cargo ship

2005

2006

No.

CGT

No.

CGT

No.

29,100

44,660

18,000

18,900

6,000

9,600

100,100 147,035

78,300 106,955

12,000

16,200

105,600 121,020

41,600

46,270

39,000

CGT

Container ship

71,650

93,780

Ro-Ro vessel

12,000

12,600

LNG carrier

1,500

3,075

Ferry

500

1,500

31,000

38,150

Fishing vessel

4,500

18,000

1,900

7,600

Other non-cargo ship

96,800 228,000

34,100

60,500

25,000

Total

134 316,150 548,650

268,900 353,125

84,600 111,070

Table 2.2 – Dutch shipbuilding orderbook at November 2004 (>100 GT)

A database of the ships included in this table on which to base an estimate of the distribution of output by innovation type is not available from VNSI. Data on expected output from Dutch shipbuilding in 2004 has therefore been taken from Lloyd’s Register to estimate this. LR’s data indicates that 501,957 CGT is due to be delivered this year, 8.5% below the total indicated in the table above. Evaluation of this data indicates that the level of innovative products has increased further from that seen in 2002 or 2003, although with a reduction in the proportion of full prototypes. The expected distribution for 2004 is compared to the distribution for earlier years (repeated from Table 2.1 above) in Table 2.3.

Year 2000 2001 2002 2003 20049

Total output (CGT) 543,785 493,070 461,675 351,070 501,957

Proportion of output categorised as: Prototype

Partial prototype

Sister ship

17% 10% 7% 23% 11%

20% 25% 44% 30% 45%

63% 65% 48% 48% 44%

Table 2.3 – Development of innovation

Source: Lloyd’s Register data, excluding yachts for compatibility with VNSI data.

This analysis confirms that the output from Dutch shipbuilding includes a greater proportion of innovative ship types than is seen on average in Europe, and that this proportion has increased in response to market shifts. As will be seen in the estimates of expenditure by shipyards presented in the next section of this report, this has led to an increase in expenditure on R,D&I by the industry.

2.5 Estimate of R,D&I expenditure The response to the questionnaire exercise has been limited, with a limited sample for analysis as a consequence. Notwithstanding this, sufficient data have been collected to enable viable estimates of R,D&I expenditure in shipbuilding and repair to be made. For shipbuilding, the estimate has been split into two parts: contract-related R,D&I and process-related R,D&I. It is the contract-related element that is new in terms of aid permitted by EU rules. A third estimate is included below relating to R,D&I expenditure in ship repair. Unfortunately insufficient data have been provided to enable further estimates to be made for other sectors of the marine industry, that is to say equipment supply, ship owning and research organisations. 2.5.1 Shipbuilding contract-related expenditure The methodology used to estimate contract-related expenditure is summarised as follows. 1. The value of orders is not included in VNSI’s database so it is not possible to estimate the level of R,D&I expenditure as a percentage of revenue, as was done in CESA’s methodology. Having said this, with shipbuilding prices currently rising, this percentage would be less informative as a guide to the required R,D&I budget in the Netherlands than the CGT method described hereafter. 2. Questionnaire returns from shipbuilders include information on contract-related R,D&I expenditure for specific contracts. This data was checked and verified to ensure it is consistent with eligible costs and that the classification of the ship as a prototype or partial prototype is correct. Clarification and revision of the data was necessary in some cases. 3. The data collected was then categorised by ship type to be compatible with the type classifications included in VNSI’s shipbuilding output database. The database includes all output from the industry, as required by the terms of reference, including inland waterway vessels and naval vessels. The one type not included is mega-yachts and this is discussed further below. The type categories used are listed below. It has not been possible to split out from VNSI’s database which of these are seagoing and which are inland waterway, although it is confirmed that both categories are included and this therefore makes no difference to the estimate of expenditure. - Cargo carrying - Dredger - Fishing - Passenger - Naval -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------18 Dutch Maritime Network

- Service craft - Tugs 4. For each ship, the reported R,D&I expenditure was divided by the CGT value to give a unitised expenditure in € per CGT. This was then averaged by ship type for prototypes and partial prototypes. The overall average values are €423 per CGT for partial prototypes and €1,510 per CGT for prototypes. In the case of service ships, no data was reported for a partial prototype and the overall average value has been used for that category. A number of prototype categories also had no data reported. In these cases the average value has been used, weighted according to the relative value of the partial prototype category compared to the average. This weighting is necessary to reflect variations in relative R,D&I content between ship types. The resulting values are presented in Table 2.4 below. 5. The expenditure per CGT for each category was multiplied by the output in each year using data from the VNSI database. The resulting product gives the total estimated R,D&I expenditure in each year. Table 2.4 presents a summary of the average value of R,D&I expenditure for each ship type and innovation category per CGT produced. Where average values have been used due to lack of data, the figures are presented in italics. Average R,D&I expenditure Ship type

€ per CGT Partial prototype

Cargo Dredger Fishing Navy Passenger Service craft Tug Average

174 484 185 762 383 423 630 423

Prototype 1,020 2,530 662 2,725 1,369 1,924 2,253 1,510

Table 2.4 – Average contract related R,D&I expenditure per unit of work (CGT)

The output of each ship type per year, by innovation category, is presented in detail in Appendix II, based on VNSI’s database. The total output and the resulting estimated expenditure per year is presented in Table 2.5, indicating also the average unit value of expenditure per year in € per CGT produced.

Year

Output (CGT)

Total estimated contract related expenditure on

Expenditure per CGT produced (€)

R,D&I (million €) 2000 2001 2002 2003 200410

543,785 493,070 461,675 351,070 548,650

158.4 113.7 119.8 194.2 178.4

291 231 259 553 355

Table 2.5 – Estimated contract related expenditure in R,D&I11

It can be seen from Table 2.5 that the estimated expenditure per year varies quite considerably depending on the product mix, the level of throughput and the amount of innovation included in the products under construction. Factoring out the variation in throughput by using the value per CGT, there is still a considerable variation seen, in particular in 2003 where the value is very high, reflecting the relatively innovative nature of shipbuilding undertaken in that year. Table 2.5 includes an estimate of the value for 2004 based on the LR data discussed earlier. The estimated budget for 2004 is well below that indicated for 2003 despite significantly increased output but is above the average shown for the previous four years. This suggests that 2003 may have been an exceptional year, including an unusual proportion of highly innovative ships. This is likely to be linked to the low throughput indicated in the year. To this estimate must be added an estimate of the value of contract-related expenditure in the mega-yacht sector. This has been based on information on the output of the industry included in the Lloyd’s Register database. The output for the period 2000 to 2004 is presented in Table 2.6, indicating also an estimate of the contract-related R,D&I expenditure. The basis of this estimate is discussed below.

Year 2000 2001 2002 2003 2004

Output (CGT)

Total estimated contract related expenditure on

13,670 13,429 21,200 26,390 35,760

R,D&I (million €) 5.8 5.7 9.0 11.2 15.1

Table 2.6 – Estimated contract related expenditure in R,D&I for mega-yachts

Based on actual orders reported by VNSI, using the distribution of innovation types derived from LR data, as shown in Table 2.4. 11 The results presented exclude the mega yacht sector for which no information has been submitted.

In general, mega-yachts may be classed as partial prototypes. Generally speaking they are one-off ships but produced in shipyards for which this is not a new ship type (see Figure 1.1 above). Applying the overall average value of contract-related R,D&I for partial prototypes, that is €423 per CGT produced, gives the estimates presented in Table 2.6. 2.5.2 Process-related R,D&I expenditure The previous section of this report considered expenditure on R,D&I related to the development of products. Further expenditure on the development of production processes in the industry should also be taken into account. No information has been collected on the actual expenditure by Dutch shipyards on R,D&I but it is possible to estimate what the budget should be to support this activity based on known expenditure elsewhere in Europe. As part of CESA’s evaluation of innovation in shipbuilding (the confidential report on which was published in April 2004), two EU countries reported expenditure on processrelated R,D&I for the period 1999 to 2003. As the report is confidential, it is not possible to state the amounts reported or the countries concerned here, but the information has been used to derive a budgetary figure for Dutch shipbuilding. Based on estimates of revenue for the two countries concerned, it is estimated that process related R,D&I expenditure in shipbuilding was equivalent to 0.6% of turnover in one case and 1.0% in the other. The country reporting the higher level of expenditure is known to be at the forefront of investment in the shipbuilding process in Europe as part of their strategy for future development in the face of competition from the Far East. The country reporting the lower amount is also known to be active in the development of shipbuilding technology in this respect. Taking these two percentages as representing a range that may be considered by the shipbuilding industry in the Netherlands for investment in process development, the figures have been applied to the turnover of the industry in 2002 using the value reported by the DMN Study on the Dutch Maritime Cluster / Monitor12. This is the only statistic available on the turnover of the industry. The turnover reported in 2002 was €2,020 million, including shipbuilding (sea-going, inland, navy and mega-yachts) and ship repair. The range of expenditure on process-related R,D&I that may be expected from the industry, using the percentages quoted above, would be between €12 and €20 million per year. Actual expenditure is not known. 2.5.3 Innovations in repair and conversion Routine repair work involves no contract-related R,D&I expenditure over and above the process-related expenditure discussed in the previous section. Conversion work on the other hand may include significant innovations relating to the contract in the same way that shipbuilding contracts do. Limited information has been received from repair yards to enable this to be quantified.

De Nederlandse Maritieme Cluster, Monitor en Dynamiek. Dr. Harry Webers, Prof.dr. Chris Peters, Oct. 2003

The R,D&I costs relating to two major conversions have been provided, one indicating a cost at 5.1% of the contract value and the other at 4.2% of the contract value. The Netherlands is a major competitor in the conversion sector, taking significant and high value contracts. It is estimated by BOS that the turnover relating to conversions is up to around €500 million per annum. Taking the average R,D&I content value indicated, 4.6%, it is estimated that the contract-related R,D&I investment in conversion work is equivalent to around €2.3 million per annum.

2.6 Summary of expenditure The following table summarises the estimated values of R,D&I expenditure in the shipbuilding and ship repair industries in the period 2000 to 2004.

Sector Shipbuilding contractrelated (excluding megayachts)

Estimated R,D&I expenditure (m€ per annum) 113.7 to 194.2

Comments The range indicated for the period 2000 to 2004, the average being €152.9 million.

Shipbuilding contractrelated (mega-yachts)

5.7 to 15.1

The range indicated for the period 2000 to 2004, the average being €9.3 million.

Shipyard process-related

12.0 to 20.0

A range based on 2002 turnover. The average is €16.0 million.

Ship repair contract-related

2.3

Based on conversion turnover of €50 million per annum.

Table 2.7 – summary of estimated R,D&I expenditure

The total estimated expenditure over the past five years ranges from €133.7 to €231.6 million per annum, with the average being €180.5 million. The wide range in this estimate makes the prediction of future budgets difficult, in particular because of variations in throughput and product mix and the effect that this has on contract-related budgets. For process-related and ship repair contract-related, the averages indicated provide a guide to future budgets. For shipbuilding contract-related, the methods available for estimating future budgetary requirements are discussed below.

2.7 Prediction of future contract-related expenditure The estimating of future expenditure on shipyard process-related and ship repair contractrelated R,D&I is relatively easy, based on the average amounts indicated in the table above. For shipbuilding contract-related expenditure, the range of estimated values for the past five years is wide and variations in product mix, throughput and innovation intensity make the development of a system for the estimate of a budget difficult. One way to do -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------22 Dutch Maritime Network

this would be to apply the average parameters for different ship types presented in Table 2.7 above to the known or predicted forward orderbook for the year concerned. However, details of throughput may not always be known far enough in advance to enable the actual forward orderbook figures to be used and a more simple mechanism has therefore been investigated. Using an overall average figure set against predicted throughput does not provide a reliable estimate as shown in Table 2.8. This shows the predicted results using the overall average figures for the years 2000 to 2003 against the detailed estimates (repeated from Table 2.5) and how the two methods vary.

Year

2000 2001 2002 2003 Average

Estimated contract related R,D&I expenditure (million â&#x201A;Ź) Using detailed factors

Using average factors

158.4 113.7 119.8 194.2 163.2

187.5 127.5 138.0 164.0 154.0

Variation

+18% +12% +15% -15% +5%

Table 2.8 â&#x20AC;&#x201C; Estimated contract-related expenditure using detailed and average factors

Clearly, whilst there is only 5% difference in the overall averages, the difference in each year is large. In particular, as output has reduced but the proportion of highly innovative ships has increased, the averages under-estimate the value in 2003 whilst over-estimating the value prior to that date. A range of other average methods have been tried but none yield a more accurate prediction than that above. It is concluded that the only reliable prediction can be made on the basis of a detailed analysis of the forward orderbook using the detailed parameters for R,D&I expenditure listed in Table 2.8. This conclusion highlights the need for the collection of data on expenditure by the industry on a routine basis to improve the level of knowledge on the subject over time.

GUIDELINES ON MEASURING R,D&I EXPENDITURE

3.1 What is innovation? All activities are referred to in the framework as “innovation”, with no distinction made between the separate elements of research, development and innovation. This is a simpler definition of R,D&I activities than was originally considered in the CESA working group and in DMN’s 2004 study and makes the assessment of expenditure in shipbuilding easier. This term will be used in the remainder of these guidelines in place of R,D&I. Innovation in this context relates specifically to the development of a prototype or the development of a process in shipbuilding or ship conversion. Prototype may refer to the development of a complete ship or the development of new components as part of an existing ship type or series. The specific definition of a prototype in the DAS refers to: !

“the development of a new class of vessel as defined by the first vessel of a potential series of ships”.

Prototypes must be innovative in their nature. The framework further specifies that: !

Innovations must be “technologically new or substantially improved products and processes compared to the state-of-the-art existing in this industry in the Community”.

Innovations must carry a “risk of technological or industrial failure”.

This is similar to the basic definition of a prototype used in the 2004 study which is illustrated in the diagram presented in the methodology description (Figure 2.1) in Section 2.3 above. A prototype will either be a one-off new ship type for a shipyard or the first of class of a new ship type for the yard. For prototypes of new components and systems the DAS refers to the development of: !

“innovative parts of a vessel, which can be isolated from the vessel as a separate element”.

This definition follows broadly that developed by the CESA working group and as used in DMN’s 2004 study, as illustrated in Figure 2.1. In these studies the case of the development of a new component or system was designated as a “partial prototype”. This may include a one-off ship of a type previously constructed at the shipyard or the lead vessel in an innovative development of an existing ship type at the yard. This definition will also cover the conversion sector of the industry. For new processes the DAS refers to: !

“development and implementation of innovative processes regarding the production, planning, logistics or design”.

This basically covers what would normally be regarded as process-based innovation in industry. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network 25

3.2 What costs are eligible? The definitions in the DAS were finalised six months after the work for the DMN study had commenced and differ from the definitions of eligible costs used in that study. The main difference between the two is that the DAS envisages part of the production manhour costs incurred in the development of a prototype to be included in the assessment of innovation cost. The framework states that “eligible costs are limited to activities directly related to the innovative part of the project”. As a general provision, eligible costs include supporting expenditure on investments, design, engineering and testing activities directly and exclusively related to the innovative part of the project. The costs can include the procurement of goods and services from third parties, in addition to costs incurred directly by the shipyard. For the development of prototypes, eligible costs include the following: !

Design costs, including concept development, concept design, functional design and detailed design. Standard engineering design equivalent to a previous class of vessel is excluded.

Costs for studies, mock-ups and similar cost related to the design of the vessel.

Costs for planning and implementation of the design.

Costs for tests and trials of the product.

In addition to these costs for design development and engineering work, the DAS includes provision for the cost of the learning curve involved in the production of a first of class vessel in a series. Additional production costs “that are strictly necessary to validate the technological innovation” may be counted as eligible costs. These production costs, including labour and overhead costs, are eligible if they exceed 3% of the total labour and overhead cost and may constitute a maximum of 10% of the total labour cost of the ship. For new components or systems of a ship the following costs may be eligible. !

Design and development costs.

Testing of the innovation part, mock-ups.

Costs for material and equipment.

In exceptional cases the costs of construction and installation of a new component or system that are necessary to validate the innovation.

For new processes the following costs may be eligible. !

Design and development costs.

Costs for material and equipment.

Costs for testing.

Costs for feasibility studies.

Shipbuilding and ship repair are the only industries for which innovation aid provisions outlined in the framework apply. Within the provisions of the scheme, aid can be granted only to three types of companies: shipbuilding companies, ship repair companies and ship conversion companies. Having said this, the DAS interprets eligible costs to include costs for: !

“procurement of goods and services from third parties (e.g., system suppliers, turnkey suppliers, subcontractor companies), to such an extent that these goods and services are strictly related to the innovation”.

These costs are only eligible if similar aid elements have not been granted to the supplier, i.e., double counting is precluded. This suggests that the channel for innovation for supplier companies is through the shipyard, reflected in the cost of the supply of goods and services to the shipyard, rather than through an aid provision to the supplier company.

3.3 Other limitations In addition to the above definitions of innovation activity, the framework and DAS also provide definitions of eligibility for assistance. Whilst it is not the aim of this document to facilitate claims for state aid, it may be useful to summarise here what those conditions are. The following provisions are included in the framework. !

As with previous state aid legislation, the provisions are restricted to certain sectors of the industry. For shipbuilding and repair this means the building or repair of “self-propelled seagoing commercial vessels”. In the conversion sector the framework requires “radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation”.

The minimum size of ship is 100 GT, except for conversion where the minimum vessel size is 1,000 GT and for tugs where the minimum size is 365 kW.

The provisions may apply to the production of partly completed ships.

Military vessels are specifically excluded.

The maximum aid permitted is 20% of the eligible costs.

The following provisions are taken from the DAS. !

Potential assistance must be approved at the pre-contract phase of work.

Only costs incurred after an application for innovation has been made are eligible for support. The only exception to this is the cost for feasibility studies undertaken within 12 months prior to the aid application.

The maximum aid that can be granted must be less than €150 per CGT for a ship or €5 million for a new process. Values greater than this have to be specially approved by the EU Competition Directorate13.

The DMN 2004 study indicated that, due to the sophisticated nature of shipbuilding in the Netherlands, much innovation in Dutch shipyards exceeds this value per CGT.

It must be stressed that these provisions are new and are, as yet, not fully tested in action. It is essential that reference is made to the original documents (in particular the framework and the DAS) in formulating strategy and budgeting for possible aid assistance. The relevant documents are included in the appendices at the end of this publication.

3.4 Reporting of innovation costs Two forms to be used for recording innovation expenditure relating to prototypes are included with the DAS in the appendices to this publication. They can also be used to record information on process-related expenditure. The forms are similar to those used to collect data for the DMN study. The first form lists information required to demonstrate that the work claimed is innovative within the terms of the DAS. The second form details the costs relating to the innovation. Guidance for the completion of these forms is given below. The first form requires the following information. !

Name of innovation – include in this field the overall description of the contract, including the type of ship, size and CGT value.

Description of innovation – include in this field a brief overall description of why the contract should be regarded as innovative. For example, the contract may be significantly larger than previous vessels or designed for special service, e.g., very low noise or using a novel propulsion arrangement.

List of innovative elements/components – include in this field a list of the main innovative parts of the ship or the innovative elements or systems.

Innovative step – include here the identification of any former ships that the yard has completed and compare the innovative elements or systems of the current ship. This section should clearly indicate why the contract should be regarded as innovative.

Risk – as indicated in the DAS, the innovation must include some element of risk. A description of the risk, for example technological risk, financial risk or contractual risk, and an indication of the consequence of failure.

The second form aims to collect information on the cost of the innovation. The first two rows of this table require the total number of man-hours used in each part of the innovation to be recorded and the remaining rows relate to costs in Euros. The total number of manhours recorded should be converted into a Euro amount to be included in the total expenditure amount recorded in the bottom row of the table. The cost per hour should include all employment costs and the appropriate overhead allocation.

APPENDICES

APPENDIX 1 – SUMMARY OF DATA COLLECTED Table A1 presents a summary of the number of companies contacted in each industry sector and the number that have replied to provide data.

Industry sector Shipyards (including repair) Equipment suppliers Design agents Owners Total

Number of companies contacted 19 13 1 3 36

Number of companies returning data 14 2 0 2 18

Table A1 – Summary of companies returning data

As can be seen, responses to requests for information have been limited, particularly outside the shipbuilding industry itself. Only twelve out of thirty-five companies contacted returned data for use in the study. In the shipbuilding sector, the aim of the study was to try to get two to three examples of R,D&I costs for each ship type produced by the industry. Table A2 presents a summary of the data actually received from shipyards in each of the grouped types used in the analysis. By-and-large the aim was achieved with the exception of information for mega yachts and in the offshore and service sectors. Ship type Dredging Fishery Inland waterways Mega yachts Navy Offshore Seagoing Service craft Total

Planned 3 2 3 2 2 2 6 4 24

Actual 4 2 4 0 2 1 7 2 22

Table A2 – Summary of ship types for which data has been received from shipyards

The following companies responded to requests for information for this study

Sector

Shipyards

Ship owners Equipment suppliers

Company Amsterdam Ship Repair B.V. Bijlsma Shipyard B.V. B.V. Scheepswerf Maaskant Damen Shipyard Bergum Damen Shipyards Gorinchem IHC Holland Dredgers Keppel Verolme B.V. Machinefabriek Padmos Bruinisse B.V. Merwede Shipyard B.V. Koninklijke Niestern Sander B.V. Koninklijke Schelde Groep B.V. Scheepswerf Ferus Smit B.V. Scheepswerf De Hoop Lobith B.V. Volharding Shipyards B.V. Baggerij Boskalis B.V. Mercusius Scheepvaart B.V. Imtech Marine & Offshore Rolls Royce Marine Benelux B.V. Table A3 â&#x20AC;&#x201C; Companies supplying information

APPENDIX 2 â&#x20AC;&#x201C; DETAILED ANALYSIS OF OUTPUT Year

Grouped type

Total of CGT

2000 Cargo 2000 Dredger 2000 Fishing 2000 Passenger 2000 Patrol vessel 2000 Service 2000 Tug Totals Percentage of total

341,325 25,520 22,400 71,500 3,500 32,040 47,500 543,785

2001 Cargo 2001 Dredger 2001 Fishing 2001 Patrol vessel 2001 Service 2001 Tug Totals Percentage of total

265,095 141,575 23,800 13,700 22,900 26,000 493,070

2002 Cargo 2002 Dredger 2002 Fishing 2002 Passenger 2002 Patrol vessel 2002 Service 2002 Tug Totals Percentage of total

234,935 76,040 19,500 41,500 10,500 49,700 29,500 461,675

2003 Cargo 2003 Dredger 2003 Fishing 2003 Passenger 2003 Patrol vessel 2003 Service 2003 Tug Totals Percentage of total

162,295 62,500 17,000 41,475 10,000 12,300 45,500 351,070

Total 4 years Percentage of total

1,849,600

Partial prototype 68,675 9,600 26,100 1,000 2,000 107,375 20%

Prototype 45,060 5,120 19,300 500 24,040 94,020 17%

43,080 73,575 4,200 1,500 1,500

28,880

123,855 25%

49,680 10%

67,600 61,540 7,600 31,500 3,500 32,800

10,910 3,500 3,300 10,000

204,540 44%

34,110 7%

34,010 19,000 8,800 34,800 2,250

21,200 43,500

3,200 3,200 14,400

6,400

Sister 227,590 20,400 12,800 26,100 3,000 7,000 45,500 342,390 63% 193,135 68,000 16,400 9,000 7,000 26,000 319,535 65% 156,425 11,000 8,600 7,000 10,500 29,500 223,025 48% 107,085

5,000 103,860 30%

79,675 23%

8,200 1,500 5,750 4,500 40,500 167,535 48%

539,630 29%

257,485 14%

1,052,485 57%

5,175 2,000 7,800

APPENDIX 3 – FRAMEWORK ON STATE AID TO SHIPBUILDING ------------------------------------------------------------------------------------------------------------30.12.2003

Official Journal of the European Union

C 317

-----------------------------------------------------------------------------------------------------------------------------------

FRAMEWORK ON STATE AID TO SHIPBUILDING (2003/C 317/06) 1. INTRODUCTION 1. Since the early 1970s, State aid to shipbuilding has been subject to a series of specific Community regimes. Compared to industrial sectors that have not been subject to specific rules, the regimes applicable to the shipbuilding sector have contained a mixture of both stricter and more lenient provisions. This Framework provides for new rules for the assessment of State aid to shipbuilding following the expiry of Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding (1) on 31 December 2003. 2. The objectives of this Framework are, to the largest extent possible, to remove the differences between the rules applicable to the shipbuilding industry and to other industrial sectors and, thereby, to simplify and make more transparent the Commission's policy in this area, by extending general horizontal provisions to the shipbuilding sector. 3. Nevertheless, the Commission recognises that certain specific factors affecting the shipbuilding sector should be reflected in the Commission's policy of State aid control. These factors include: (a) over-capacity, depressed prices and trade distortions in the world shipbuilding market; (b) the nature of ships as very large, capital goods, which raises the potential of State-supported credit facilities to distort competition;

(c) the fact that World Trade Organisation (‘WTO’) unfair trade disciplines are difficult to apply in the shipbuilding sector; (d) the existence of agreements within the Organisation for Economic Cooperation and Development (‘OECD’) in the shipbuilding sector, namely the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits with its Sector Understanding on Export Credits for Ships, which applies in the Community pursuant to Council Decision 2001/76/EC of 22 December 2000 replacing the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits (2)(2). 4. The Commission acknowledges that work is being undertaken within the OECD framework to replace the 1994 Agreement on respecting normal competitive conditions in the shipbuilding and repair industry (3), which has not entered into force. This Framework is in no way intended to prejudice the outcome of that work and may be reviewed in the light of an agreement within the OECD. 5. In the light of these special characteristics, the objectives of this Framework, in addition to simplifying the applicable rules, are to: (a) encourage greater efficiency and competitiveness of Community yards, in particular through the promotion of innovation; (2)

(1)

OJ L 202, 18.7.1998, p. 1.

OJ L 32, 2.2.2001, p. 1. Decision as amended by Decision 2002/634/EC (OJ L 206, 3.8.2002, p. 16). (3) OJ C 375, 30.12.1994, p. 1.

(b) facilitate the reduction of economically non-viable capacity where necessary;

10. For the purposes of this Framework, the following definitions shall apply:

(a) ‘shipbuilding’ means the building, in the Community, of self-propelled seagoing commercial vessels;

6. In order to achieve these objectives, this Framework provides for specific measures in relation to aid for innovation, closure aid, export credits and development aid and regional aid.

(b) ‘ship repair’ means the repair or reconditioning in the Community of elfpropelled seagoing commercial vessels;

7. Certain features make shipbuilding unique and distinguish it from other industries such as short production series, the size, value and complexity of the units produced as well as the fact that prototypes are generally used commercially. As a consequence, shipbuilding is the only sector eligible for innovation aid. Investment aid for innovation was introduced by Regulation (EC) No 1540/98 and was intended to be authorised only in duly justified cases, as an incentive to technological risk-taking. However, the implementation of this provision was not satisfactory. It is considered that the unique characteristics of the shipbuilding industry justify maintaining a sector-specific innovation aid. Therefore, this Framework aims at improving support to innovation, by taking into account notably the difficulties of application of the previous provision. 8. The Commission may only consider aid to shipbuilding, ship repair and ship conversion to be compatible with the common market if it complies with the provisions of this Framework. 9. This Framework is without prejudice to the temporary measures established by Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to shipbuilding (4).

2. DEFINITIONS

(4)

(c) ‘ship conversion’ means the conversion, in the Community, of self-propelled seagoing commercial vessels of not less than 1 000 gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation; (d)

‘self-propelled seagoing vessels’ means:

commercial

(i) vessels of not less than 100 gt used for the transportation of passengers and/or goods, (ii) vessels of not less than 100 gt for the performance of a specialised service (for example, dredgers and ice breakers), (iii) tugs of not less than 365 kW, (iv) fishing vessels of not less than 100 gt, with regards to export credits and development aid if in compliance with the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships, or with any agreement amending or replacing either of them, as well as with the Community rules governing State aid in the fishery and aquaculture sector, (v) unfinished shells of the vessels referred to in points (i) to (iv) that are afloat and mobile.

OJ L 172, 2.7.2002, p. 1.

For the purposes of the above, ‘self-propelled seagoing vessel’ shall mean a vessel that, by means of its permanent propulsion and steering, has all the characteristics of selfnavigability on the high seas. Military vessels (i.e. vessels which according to their basic structural characteristics and capability are specifically intended to be used exclusively for military purposes, such as warships and other vessels for offensive or defensive action) and modifications made or features added to other vessels exclusively for military purposes shall be excluded, provided that any measures or practices applied in respect of such vessels, modifications or features are not disguised actions taken in favour of commercial shipbuilding inconsistent with State aid rules; (e) ‘related entity’ means any natural or legal person who: (i) owns or controls an undertaking engaged in shipbuilding, ship repair or ship conversion, or (ii) is owned or controlled, directly or indirectly, whether through stock ownership or otherwise, by an undertaking engaged in shipbuilding, ship repair or ship conversion. Control shall be presumed to arise once a person or undertaking engaged in shipbuilding, ship repair or ship conversion owns or controls an interest of more than 25 % in the other or vice versa.. (f) ‘aid’ means aid within the meaning of Article 87(1) of the Treaty establishing the European Community, including measures such as credit facilities, guarantees and tax concessions.

or indirectly, for conversion of ships.

building,

repair

3.2. Application of Horizontal Provisions 12. The general principle is that aid to shipbuilding may be granted in accordance with Articles 87 and 88 of the Treaty and all legislation and measures adopted on those bases, including the following provisions: (a) Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (1); (b) Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid(2); (c) Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid (3); (d) Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises (4); (e) Regulation (EC) No 1177/2002; (f) Community guidelines on State aid for rescuing and restructuring firms in difficulties (5); (g) Community guidelines on State aid for environmental protection (6); and (h) Community framework for State aid for research and development (7).

3. APPLICABLE PROVISIONS (1) (2)

3.1. Scope

(3)

OJ L 83, 27.3.1999, p. 1. OJ L 10, 13.1.2001, p. 20.

OJ L 10, 13.1.2001, p. 30.

(4)

11. Aid to shipbuilding shall include aid to any shipyard, related entity, shipowner and third party which is granted, whether directly

OJ L 10, 13.1.2001, p. 33. (5) OJ C 288, 9.10.1999, p. 2. (6) OJ C 37, 3.2.2001, p. 3. (7) OJ C 45, 17.2.1996, p. 5.

3.3. Specific Provisions 13. The general principle outlined in Section 3.2 is subject to the following exceptions, which are justified by the specific factors presented in Section 1. 3.3.1. Aid to research, development and innovation 14. Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion undertakings on research and development projects may be considered compatible with the common market if it is in compliance with the rules laid down in the Community framework for State aid for research and development, or any successor arrangement. 15. Aid granted for innovation in existing shipbuilding, ship repair or ship conversion yards may be deemed compatible with the common market up to a maximum aid intensity of 20 % gross, provided that: (a) it relates to the industrial application of innovative products and processes, i.e. technologically new or substantially improved products and processes compared to the state of the art existing in this industry in the Community, which carry a risk of technological or industrial failure; (b)

the aid is limited to supporting expenditure on investments, design, engineering and testing activities directly and exclusively related to the innovative part of the project. Exceptionally, additional production costs that are strictly necessary to validate the technological innovation can be eligible to the extent they are limited to the minimum necessary amount.

3.3.2. Closure aid 16. Aid to defray the normal costs resulting from the total or partial closure of shipbuilding, ship repair or ship conversion yards may be considered compatible with the

common market provided that the resulting capacity reduction is of a genuine and irreversible nature. 17. The costs eligible for the aid referred to in paragraph 16 are: (a) payments to workers made redundant or retired before legal retirement age; (b) the costs of counselling services to workers made or to be made redundant or retired before legal retirement age, including payments made by shipyards to facilitate the creation of small enterprises which are independent of the shipyards in question and whose activities are not principally shipbuilding; (c) payments to workers for vocational retraining; (d) expenditure incurred for the redevelopment of the yard(s), its buildings, installations and infrastructure for use other than shipbuilding. 18. In addition, in the case of undertakings which totally cease shipbuilding, ship repair and ship conversion, the following measures may also be deemed compatible with the common market: (a) aid of an amount not exceeding the higher of the following two values, as determined by an independent consultant's report: the residual book value of the installations, or the discounted operational profits obtainable over a projected three-year period, less any advantages the aided undertaking derives from the closure of the installations; (b) aid such as loans or loan guarantees for working capital needed to enable the undertaking to complete unfinished works provided that this is kept to the minimum necessary and a significant proportion of the work has already been done.

19. Undertakings receiving partial closure aid must not have benefited from rescue or restructuring aid in the past 10 years. Where less than 10 years have elapsed since the rescue or restructuring aid was granted, the Commission will allow partial closure aid only in exceptional and unforeseeable circumstances for which the company is not responsible. 20. The amount and intensity of aid must be justified by the extent of the closures involved, account being taken of the structural problems of the region concerned and, in the case of conversion to other industrial activities, of the Community legislation and rules applicable to those new activities. 21. In order to establish the irreversible nature of aided closures, the Member State concerned shall ensure that the closed shipbuilding facilities remain closed for a period of not less than 10 years. 3.3.3. Employment aid 22. Aid granted for the creation of employment as well as for the recruitment of disadvantaged and disabled workers or to cover the additional costs of employing disadvantaged and disabled workers in shipbuilding, ship repair or ship conversion undertakings may be considered compatible with the common market if it is in compliance with the substantive rules laid down in Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment (1).

3.3.4. Export credits

23. Aid to shipbuilding in the form of Statesupported credit facilities granted to national and non-national shipowners or third parties for the building or conversion of vessels may be deemed compatible with the common market if it complies with the terms of the (1)

OJ L 337, 13.12.2002, p. 3.

1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships or any successive terms laid down in such an arrangement or replacing the Arrangement. 3.3.5. Development aid 24. Aid related to shipbuilding and ship conversion granted as development assistance to a developing country may be deemed compatible with the common market if it complies with the terms laid down for that purpose by the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits or any successive terms laid down in such an arrangement or replacing the Arrangement. 25. The Commission will verify the particular development content of the proposed aid, that the aid is necessary and that it falls within the scope of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits for Ships or any successive terms laid down in such an arrangement or replacing the Arrangement. The offer of development assistance must be open to bids from different yards. To the extent that Community public procurement rules are applicable, bidding procedures have to comply with them. 3.3.6. Regional aid 26. Regional aid to shipbuilding, ship repair or ship conversion may be deemed compatible with the common market only if it fulfils the following conditions: (a) the aid must be granted for investment in upgrading or modernising existing yards, not linked to a financial restructuring of the yard(s) concerned, with the objective of improving the productivity of existing installations; (b) in regions referred to in Article 87(3)(a) of the Treaty and complying with the map approved by the Commission for

each Member State for the grant of regional aid, the intensity of the aid must not exceed 22,5 %; (c) in regions referred to in Article 87(3)(c) of the Treaty and complying with the map approved by the Commission for each Member State for the grant of regional aid, the intensity of the aid must not exceed 12,5 % or the applicable regional aid ceiling, whichever is the lower; (d) the aid must be limited to support eligible expenditure as defined in the applicable Community guidelines on regional aid. 4. NOTIFICATION OBLIGATION 27. All plans to grant new aid to shipbuilding, ship repair or ship conversion, either in the form of a scheme or as individual aid not covered by a scheme, shall be notified to the Commission except if they fulfil the conditions set forth in one of the Regulations exempting certain categories of State aid from the requirement of prior notification. 5. MONITORING 28. Member States shall submit to the Commission annual reports on all existing

aid schemes pursuant to the rules set forth in Regulation (EC) No 659/1999 and in its implementing provisions. 6. OVERLAPPING AID FROM DIFFERENT SOURCES 29. The aid ceilings stipulated in this Framework are applicable irrespective of whether the aid in question is financed wholly or in part from State resources or from Community resources. Aid authorised under this Framework may not be combined with other forms of State aid within the meaning of Article 87(1) of the Treaty or with other forms of Community financing, the cumulation of which produces an aid intensity higher than that laid down in these guidelines. 30. In the case of aid serving different purposes and involving the same eligible costs, the most favourable aid ceiling will apply. 7. APPLICATION OF THIS FRAMEWORK 31. This Framework will be applicable from 1 January 2004 until 31 December 2006 at the latest. It may be reviewed by the Commission during this period, in particular in the light of the Community's international obligations.

APPENDIX 4 – DRAFT AID SCHEME -------------------------------------------------------------------------------------------------------------

DRAFT AID SCHEME FOR THE GRANTING OF INNOVATION AID TO THE SHIPBUILDING INDUSTRY ACCORDING TO

SECTION 3.3.1 OF THE FRAMEWORK ON STATE AID TO SHIPBUILDING14

INTRODUCTION

1.1 In its “framework on State aid to shipbuilding” the European Commission has set out the conditions under which it will consider aid to the shipbuilding industry, including aid for innovation, compatible with the Common Market. 1.2 One of the objectives of the framework is to encourage greater efficiency and competitiveness of European Community shipyards, in particular through the promotion of innovation. 1.3 The Commission acknowledges that certain features make shipbuilding unique and distinguish it from other industries such as short production series, the size, value and complexity of the units produced as well as the fact that prototypes are generally used commercially. Consequently it regards the shipbuilding sector as the only sector eligible for innovation aid. 1.4 The Framework aims at improving support to innovation, by taking into account notably the difficulties of application of the previous provision. 1.5 While aiming at providing effective support, innovation aid must not lead to any distortion of competition in the Common Market. In order to be effective, respective provisions must meet the requirements resulting form the business process, in particular they must allow for aid approval during the pre-contract phase. At the same time, the procedure must be transparent and allow for sufficient monitoring, while limiting the administrative burden to the minimum necessary. 1.6 The present scheme sets out in detail the requirements and conditions for the granting of innovation aid in accordance with section 3.3.1 of the framework on State aid to shipbuilding.

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APPLICANTS

2.1 Innovation aid may, if in accordance with the conditions set out in sections 3 to 5 below, be granted to: (a)

Shipbuilding companies, i.e. companies that build self-propelled seagoing commercial vessels as defined in the framework;

(b)

ship repair companies, i.e. companies that repair or recondition self-propelled seagoing commercial vessels as defined in the framework;

(c)

ship conversion companies; i.e. companies that convert self-propelled seagoing commercial vessels of not less than 100 gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system, other principal technical systems or the passenger accommodation.

ELIGIBLE APPLICATIONS

3.1 General conditions: Innovation aid may be granted for the industrial application of innovative products and processes. These are technologically new or substantially improved products and processes when compared to the state of the art that exists in the shipbuilding industry within the European Community. The implementation of the innovative product or process must carry a risk of technological or industrial failure. The paragraphs 3.2 â&#x20AC;&#x201C; 3.4 specify which products and processes meet the above defined requirements and are therefore eligible for innovation aid. 3.2 New class of vessel: Innovation aid may be granted for the development and design of a new class of vessel as defined by the first vessel of a potential series of ships (prototype). 3.3 New components and systems of a ship: Innovation aid may be granted for innovative parts of a vessel, which can be isolated from the vessel as a separate element. 3.4 New processes: Innovation aid may be granted for development and implementation of innovative processes regarding the production, planning, logistics or design. 4.

ELIGIBLE COSTS

4.1 General conditions: Innovation aid for products and processes described in section 3 above must be limited to supporting expenditure on investments, design, engineering and testing activities directly and exclusively related to the innovative part of the project and incurred after the date of application for innovation aid (except for item 4.4 d). Eligible costs include costs of the shipyard as well as costs for the procurement of goods and services from third parties (e.g. system suppliers, turnkey suppliers, subcontractor companies), to such an extent that these goods and services are strictly related to the innovation as described in section 3 above. The eligible costs are defined in more detail below.

4.2 New class of vessel: For the construction of a new class of ship that is eligible for innovation aid according to section 3.2 above, the following costs are eligible: (a)

Design cost: Design costs include: (i) costs for the concept development; (ii) costs for the concept design; (iii) costs for the functional design; (iv) costs for the detailed design; (v) costs for studies, testing, mock-ups; and similar costs related to the development and design of the vessel; (vi) costs for the planning of the implementation of the design; (vii) costs for tests and trials of the product. (viii) but excludes standard engineering design equivalent to a previous class of vessel

(b)

Incremental labour and overhead costs for a new class of vessel (learning curve): Additional production costs that are strictly necessary to validate the technological innovation can be eligible to the extent they are limited to the minimum necessary amount. Additional production costs are defined as the labour costs and associated overhead costs according to normal practice in the shipbuilding industry, for a new class of vessel, compared to the production costs of the subsequent vessels of the same series (sister ships). Due to the technical challenges associated with constructing a prototype, production costs of the first vessel normally exceed production costs of the subsequent sister ships. Accordingly, in exceptional, duly justified cases, a maximum of 10% of the labour and overhead costs associated with the construction of a new class of vessel can be considered as eligible costs, if necessary to validate the technical innovation. Labour costs include wages and social costs. A case is considered to be duly justified if the additional production costs, as defined above, are estimated to exceed 3%.

4.3 New components or systems of a ship: For new components or systems that are eligible for innovation aid according to section 3.3 above, the following cost items are eligible to the extent that they are strictly related to the innovation: (a)

design and development costs;

(b)

costs for the testing of the innovation part, mock-ups;

(c)

costs for material and equipment;

(d)

in exceptional cases, the costs of construction and installation of a new component or system that are necessary to validate the innovation, to the extent that they are limited to the minimum necessary amount

4.4 New processes: For new processes that are eligible for innovation aid according to section 3.4 above, the following cost items are eligible to the extent that they are strictly related to the innovative process: (a)

design and development costs;

(b)

costs for material and equipment;

(c)

if applicable costs for the testing of the new process;

(d)

costs for feasibility studies undertaken within 12 months prior to the aid application

AID INTENSITY

5.1 Innovation aid for the products and processes defined in section 3 above may be granted up to a maximum aid intensity of 20% of the eligible costs defined in section 4 above. 5.2 The ... (add name of relevant national authority) will examine the eligible costs on the basis of the estimations provided and demonstrated by the applicant. 5.3 In case the shipyard includes the costs for the procurement of goods and services of suppliers, these items must not include similar aid elements granted to the suppliers. 6.

APPLICATION OF THE SCHEME AND APPLICATION PROCEDURE

6.1 This aid scheme does not apply to projects for which, the total aid amount would exceed 150 euro per cgt for a ship or 5 million euro for new processes. All plans to grant aid exceeding the above amounts have to be notified to the European Commission as ad hoc aid, in accordance with the standard notification procedure set out in Section 27 of the Framework on State Aid to Shipbuilding15 6.2 An application for aid under this scheme must be submitted to [add name of relevant national authority] prior to the applicant entering into a binding agreement to implement the specific shipbuilding, ship repair or ship conversion project for which innovation aid is sought. 6.3 An application for aid under this scheme must be submitted to [add name of relevant national authority] prior to the applicant starting to implement a new process in relation to shipbuilding, ship repair or ship conversion for which innovation aid is sought. 6.4 An application for aid under this scheme must include a description of the innovation, both in qualitative and quantitative terms. Applicants must provide this information by completing Form A and Form B, respectively. Form A has been reproduced in Annex A, Form B in Annex B.

2003/C 317/06, OJ 2003 C317/11 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------44 Dutch Maritime Network

6.5 [Add name of relevant national authority] will seek confirmation from [an independent, certified and technically competent entity] that the aid is sought for a project that represents a technologically new or substantially improved product or process compared to the state of the art that exists in the shipbuilding industry within the European Community, and that falls into one of the categories set out in Sections 3.2, 3.3 and 3.4 above (qualitative appraisal). 6.6 The [independent, certified and technically competent entity] will confirm to the relevant national authority that the eligible costs for the purposes of Section 4 have been calculated, exclusively, to cover to the innovative parts of the relevant project (quantitative appraisal). 6.7 The aid application can only be approved on condition that the applicant subsequently enters into a binding agreement to implement the specific shipbuilding, ship repair or ship conversion project or process for which the innovation aid is sought. Payments will only be made after the signing of the relevant contract(s). If the contract is cancelled or the project is abandoned, all aid disbursed has to be reimbursed with interest from the date the aid was paid out. Equally, if the project is not completed, aid that has not been used for the eligible innovation expenditure has to be reimbursed with interest. The rate of interest to be applied would be the commercial rate referred to on the European Commissionâ&#x20AC;&#x2122;s website16. 6.8 For a new class of vessel, a new component or a new system, up to 80% of the aid granted will be paid to the applicant during the design and construction phase. Payments are to be made in three equal instalments, depending on the projectâ&#x20AC;&#x2122;s progress, which has to be appropriately demonstrated. The remaining 20% of the aid will be paid after completion of the project and on the basis of the actual costs incurred, as proven by the applicant. 6.9

Equivalent procedures apply to process innovations.

EX-POST MONITORING

7.1

In order to ensure transparency and effective monitoring, Member States should provide the European Commission with summary information in the form laid down in Annex C, whenever aid for innovation is granted in pursuance of this aid scheme. Such information should also include a copy of the initial aid application.

http://europa.eu.int/comm/competition/state_aid/others/reference_rates.html -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Dutch Maritime Network 45

FORM A

Consequences of risk materialization

Description of risk

Description of innovative step vs base

Base for comparison

List of innovative elements/components

Description of innovation

Name of innovation (title)

INNOVATION AID

Innovative step

Risk

INNOVATION AND INNOVATIVENESS

xh xh

TOTAL

Construction (work)

Management

Purchasing, etc.

Construction (hardware)

TOTAL

Tests

Turnkey deliveries

Subcontracted work

Material

Professional services

Manhours (blue collar)

xh Manhours (white collar)

INNOVATION AID

FORM B

Concept development Eligible cost for Innovation Aid

Functional design

Detailed design

Mock-ups

ANNEX 1

FORM FOR EX-POST MONITORING

Please provide the following information: (a)

Aid scheme title

(b)

Public Entity providing the assistance

(c)

The date the European Commission approved the aid scheme and the State aid case reference number

(d)

The country, the region and the municipality in which the aid recipient is located.

(e)

The company name and, where relevant, the name of the parent companies

(f)

The type of aid granted, indicating whether it constitutes (i) aid for a new class of vessel, (ii) aid for new components and systems, or (iii) aid for new processes.

(g)

The total cost and the eligible cost of capital expenditure to be invested over the lifetime of the shipbuilding, ship repair or ship conversion project.

(h)

The amount of support received.