Until the mid-1950s, the Bank for Construction Credit financed domestic ship buyers with 85 90% credit at 2% for 20 years and more. Under the 1956 law for the renewal of the Spanish fleet, it provided 80% credits at 4% for 15 to 20 years. From 1966 to 1968, 80% credits were offered at 4-1/2 to 5% for 15 years. Prior to 1966, owners were able to buy ships with a debt service charge of about 7% of the purchase price in the first year; after 1966 the first year service charge rose to 9.5%.

After 1968, ship finance was transferred to the private banks, who were required to invest a fixed percentage of their assets in export credit, domestic ships, and purchases of industrial equipment. The percentage was fixed at 7% from 1971 - 73 and at 9% for 1974. Ship finance has not been particularly attractive to the banks and they have been able to meet their percentage obligation without meeting the credit needs of the shipowners. In 1971, the Bank again undertook to provide credit for domestic ships between 100 and 200 gr. t., as the owners found it difficult to get private bank financing. Interest rates are fixed for the required investments of bank assets, with the terms for ships for export or for domestic owners set at 0.9 above the Central Bank rediscount rate. The Bank for Construction Credit lends on the same terms. The rates were 5.85% until mid-1973, when they were raised to 6.9%, with an 8-year repayment period. With repayment required within 8 years, debt service now requires a sum equivalent to 15.5% of the acquisition cost in the first year.

The smaller owners continue to have difficulty in finding credit and the Bank may raise its limit on eligible ship size to 12 to 16, 000 g. r.t. The credit shortage has also led the Bank to undertake in 1972 to provide 25% of the financing required by domestic buyers of larger ships. The

Bank provides such credit at the same interest rate charged by the private banks for the remaining 75% of the credit. However, its participation facilitates finding the other 75% and eliminates the need for spending 3.8% of the value of the total credit to register and cancel the ship mortgage. Private bank commissions add another 1% to the cost of the

loan.

Since the inception of the program, the Bank for Construction Credit has lent some $550 million to Spanish shipowners. At the end of 1972, it had about $270 million outstanding in such loans, 10% less than at the end of 1970. A third of the outstanding ship loans were still paying 2% and the average was not much over 3%. The loans cost owners about $8.7 million in interest charges in 1972, $4.5 million less than their cost at the government's borrowing rate and about $15 million less than the operators would have had to pay the commercial banks for longterm loans.

New credits were authorized in 1972 in the amount of $60 million. The Plan had foreseen the need for about $250 million to finance deliveries of $310 million worth of ships to domestic owners in 1972. Though the new credits more than reimbursed the government's borrowing cost, at 5.9% interest, the owners were saving about $10 million per year on the cost of financing new vessels on the free Spanish capital markets. (3) Export Credits

Foreign buyers have been able to get suppliers' credits from the Spanish yards. Typically, they have had to pay 5% at the signing of the contract and 15% more by the time the ship is delivered, with the remaining 80% payable over 8 years. The Bank for Industrial Credit, an official lending institution, finances 60% of the contract price until the ship is delivered. Thereupon, the Bank for Foreign Credit advanced 80% of the delivered price to the yard.

From 1968 - 1970, credits were available to foreign buyers at 6% interest from the Bank for Industrial Credit. When the Bank for Foreign Credit took over such financing in 1972, the rate was fixed at 5.85%. In 1973, it was raised to 6. 9%. Bank commission charges, export insurance on 90% of the credit, and the cost of a bank guarantee of the uninsured 10% of the credit are said to raise the cost to the yard to 7.4%. Under the terms of the OECD Understanding, the foreign buyer must pay 7.5%. The unregulated commercial market would hardly have provided such funds at less than 9.0%, and probably at least 10% in the 1970s. Nevertheless, some foreign buyers have preferred to pay cash, financing the purchase on the international market where credit at times has been available to some borrowers at less than 7.5%. The system is without direct cost to the government.

For 1973, the cost to the Spanish government of assistance to the maritime industry was about $200 million. About $36. 5 million of this sum consisted of direct subsidies for operating cabotage trade vessels and direct aid for oceanography and fishing. Another $136.5 million consisted of direct payments to shipyards, nearly 18. 5% of the price of the ships they sell.

Indirect support in the form of tax and credit benefits were available, but their cost to the government was probably on the order of $25 million in 1973. The direct cost of tax benefits is relatively low in Spain because the corporate income tax rate is so low, two-thirds that of the U. S. Moreover, one of the two major commercial shipbuilders was still losing money because of underbid contracts and could not use its tax concessions. Taxes and dividends received from the other major commercial shipbuilder (50% government equity) and from ship operators are estimated at about $7.5 million on $900 million or more of sales of ships and ocean-going shipping services.

While credit benefits to Spanish yards and operators are very important in reducing their costs, the Spanish system now permits them to be made available to the industry without direct cost to the government. Financial institutions are required to make such loans either directly to the businesses or indirectly through government banks. Since the rates they may pay their depositors are also fixed at a much lower level, the economy as a whole bears the cost of cheap maritime credit rather than the government budget. Ship purchase credits extended in the 1960s and still outstanding probably cost the government some $4.5 million in interest costs. Contributions to INI that were used to acquire equity in

shipyards seem to have cost the government some $4 million in inter

est in 1973.

B. Net Value of Government Support to the Cost of
Buying a Ship from Spanish Yards

The value of new merchant ships delivered by Spanish yards in 1973 was about $750 million. Export ships accounted for about half of this sum, including the value of primas and indirect tax rebates paid to the yards by the government. Without the premiums and rebates, the tax benefits and the injections of government credit at below market rates, the yards would have had to charge almost $150 million more than they did, equal to about 20% of the cost of the ships they delivered. Barring contract renegotiations, some buyers (including two major foreignowned oil companies) will get ships at even larger savings in 1974 and 1975. As a result of underbidding even after tax rebates, the ships are scheduled to be delivered at a cost at least a third below production costs of the yard. Without government help, the company would have been unable to fulfil its contracts.

C.

Net Value of Government Support to Spanish
Operating Costs

The freight revenues of Spanish ocean-going operators in 1973 probably exceeded $160 million. Operating with ships sold below yard costs as a result of government support to the yards, with special tax benefits and with credit at very much lower interest rates than they would have had to pay on a free capital market, the operators had savings that may have aggregated $60 million, or 38% of their freight revenues. Undoubtedly, without such support, freight rates would have been raised, since most of the Spanish fleet operated within a protected market. Without government support, the size of the fleet would undoubtedly be smaller and its average age higher.