Cyprus: The Marco Polo Programme & Cyprus: Financing the Motorways of the Seas

The European Union, in a continuous effort to reduce road traffic congestion and enhance multimodal transport, encourages and helps finance modal shifts from road freight transport to rail, waterway and short sea transport. The Marco Polo programme was established through EC Regulation 1382/2003 to promote this.

This article provides an overview of EC Regulation 1382/2003 and its proposed successor as well as the benefits to investors and shipowners of taking advantage of the geographic location of Cyprus and its favourable tax system for claiming the benefits of the Marco Polo programme.

EC Regulation 1382/2003 is the financing instrument through which the European Commission may grant financial aid for projects related to the logistics market which contribute to reducing congestion in the road freight transport system or improving the environmental performance of the transport system by optimising transport to and from intermodal transport chains, in the territories of the EU Member States.

The Marco Polo programme applies to projects involving at least:

1. the territories of two EU Member States, or

2. the territory of one EU Member State and a "close third country".

As a general rule, eligible applicants for financial assistance through the Marco Polo programme consist of consortiums of two or more undertakings, established either:

1. in at least two different EU Member States, or

2. in at least one EU Member State and one close third country.

Depending on the exact nature of the project, the financial aid granted by the European Commission can reach 30% for actions classified as "modal shift actions" or 35% for "catalyst actions involving innovative measures to overcome structural barriers in the market".

The Regulation defines a "modal shift action" as any action directly and immediately shifting freight from road to short sea shipping, rail, inland waterways or a combination of modes of transport in which road journeys are as short as possible, without being a catalyst action.

"Catalyst actions" are defined as any innovative action aimed at overcoming Community-related structural barriers in the market for freight transport which impede the efficient functioning of the markets, the competitiveness of short sea shipping, rail, or inland waterways, or the efficiency of transport chains making use of these modes.

Furthermore, financial assistance of up to 50% can be granted for "common learning actions" which aim at improving co-operation for structurally optimising working methods and procedures in the freight transport chain, taking into account the requirements for logistics.

Depending on the classification of the proposed action, a small number of simple criteria and conditions are imposed for the granting of financial assistance under the Marco Polo programme.

Proposed projects for financial assistance under the Marco Polo programme must be submitted to the European Commission which evaluates these with the help of a committee.

Given the desire of the European Union as evidenced by the Commission’s White Paper on Transport to further increase intermodal transport and given that the financial framework for the implementation of the Marco Polo programme as expressed in EC Regulation 1383/2003 ends on 31 December 2006, the Commission has already proposed a new EC regulation to give effect to the Marco Polo II programme with an outline budget of €740 million for the period 2007 to 2013.

The proposed new regulation is largely similar to the existing one. It will, however, cover a wider geographical scope which will extend further from the 25 Member States of the European Union to EU applicant countries, EFTA and EEA countries, neighbouring eastern European countries such as Russia and Ukraine, the Balkans, as well as the Mediterranean region.

The proposed new regulation, in addition to the currently recognised action types, introduces two further categories:

1. Motorways of the Seas Actions; and

2. Traffic Avoidance Actions.

"Motorways of the seas action" is defined as any innovative action directly shifting freight from road to short sea shipping or a combination of waterborne with other modes of transport in which road journeys are as short as possible. The definition also includes the modification or creation of ancillary infrastructure, to implement a very large volume, high frequency intermodal waterborne transport service that includes non-road hinterland freight transport for integrated door-to-door services.

As a simple example, as expressed in the explanatory memorandum accompanying the proposed regulation, "motorways of the seas" can be established between France and Spain in order to avoid the road traffic congestion in the Pyrenees.

"Traffic avoidance action" means any innovative action integrating transport into production logistics, including the modification or creation of the ancillary infrastructure and equipment, aimed at shifting a significant amount of freight from road to other means of transport while maintaining overall output and employment in the EU.

Financial assistance of up to 50% will continue to be available for "common learning actions" under the proposed new regulation. For the other four categories, financial assistance will be available for up to 35% of the total expenditure necessary to achieve the objectives of the action.

As is also the case with the current EC Regulation, community financial assistance under the Marco Polo programmes is generally independent of any national State aid granted provided the national aid arrangements conform with EU legislation.

Cyprus is a well-established shipping centre in a strategic geographical location at the crossroads of prosperous financial regions of three continents and next to the Suez Canal.

It constitutes the third largest ship management centre in the world and the Cypriot registered merchant fleet currently ranks ninth on the list of leading maritime nations.

Cyprus is nowadays considered as one of the most favourable jurisdictions in the European Union, indeed the whole world, in which to do business.

It is classed as a low tax jurisdiction but at the same time, its fiscal and regulatory regimes as well as its legislation are fully aligned with the EU’s acquis communautaire.

The close proximity of Cyprus to Egypt, Israel, Lebanon and Syria makes the island an ideal port of call on short sea shipping routes between these countries and beyond to destinations such as Greece and Italy.

The involvement of the island in such routes may open the possibility of receiving financial aid through the Marco Polo Programmes and make them more widely used.

Furthermore, as Turkey progresses to become a full EU Member State, it is expected that the current Turkish prohibition against Cypriot ships from calling at Turkish ports will be lifted. Indeed this is an implied requirement under the Customs Union Protocol that was signed between Turkey and the European Union. The European Ship Owners’ Association fully supports such a development.

Moreover, even if the proposed projects are not in the geographic vicinity of Cyprus, prospective investors and shipowners engaged in short sea shipping or indeed, any other shipping activity, can take advantage of the very favourable tonnage tax system applicable to Cyprus registered ships by registering their vessels as such.

The Marco Polo programme and its proposed Marco Polo II extension open up great investment opportunities. Cyprus is an ideal business base through which investors and shipowners can take advantage of these programmes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.