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Appendix C Finland Case Study

C1. Ferry Legislation and Licensing

Domestic ferry services

C1.1 There are four different types of ferry services that operate out of the Finnish ports. There are ferries that go between the mainland and the islands, ferries that go between islands in the archipelagos, international ferries that go between Finland, Sweden and Estonia, and an international Public Service Obligation service between Finland and Sweden.

Mainland-Island Services
C1.2 These services are run by the Finnish Maritime Administration. The Maritime Administration owns 9 vessels that carry vehicles and passengers.

C1.3 The mainland-island services are procured by the Finnish Maritime Administration acting on behalf of the community. Since 2004, the services have been provided by a corporatised entity that is wholly owned by the Finnish Government. Prior to 2004, the services were run directly by the Finnish Maritime Administration. The creation of the corporatised entity was to improve the efficiency of service provision.

C1.4 One of the services leaves from the Etelaesplanadi in Helsinki to the offshore islands of Suomenlinna and Korkeasaari. Ferry-boats are part of Helsinki City Transportation system.

C1.5 The regular ferry-boat runs between Suomenlinna and Helsinki all year round. There is an additional service from Katajanokka. The ferry leaves from the Marketsquare - Kauppatori. There are also several motorboats to Suomenlinna running from the beginning of May to mid-September.

C1.6 The traffic and carrying capacity of the Helsinki- Suomanlinna Islands in 2001 are as follows:

Table C1 Traffic and Carrying Statistics of Ferry Service Between Helsinki and the Suomenlinna Islands, 2001

Source: Ministry of Transport and Communications Finland. Public Transport Performance Statistics 2001. Reports and Memoranda B5/2003

Inter-Island Services

C1.7 On the west coast, there are ferry services between Mariehamn and Aland, and amongst the islands in the archipelagos that operate without Public Service Obligations. These services are non-commercial and are provided by the island governments on government-owned vessels.

C1.8 Funding for these services comes from both the Maritime Administration and the local planning authorities. The ferries mostly belong to local government companies. Different routes go to different islands and the fleet comprises a large number of ferries of different sizes adapted to the configuration of the archipelagos.

C1.9 Permanent residents in the archipelagos ride the ferries for free, whereas tourists have to pay for the services.

C1.10 International ferries run between Helsinki and Porvoo, Helsinki and Stockholm (Sweden), and Helsinki and Talinn (Estonia).

C1.11 External martime traffic is provided by private companies in a competitive market.

PSO Services between Finland and Sweden
C1.12 A Public Service Obligation ( PSO) route between Finland and Sweden exists on the basis that it provides a vital link between Finland and Sweden, and would not have been commercially viable without subsidies.

C1.13 The service was tendered in accordance with European Commission PSO rules on subsidised maritime cabotage.

C1.14 The tender resulted in a three-year contract (2003-2005) between the Finnish District Authority and a private operator.

C1.15 There is currently one vessel serving the route. The operator is a Finnish company operating under the Swedish flag.

C1.16 Funding for the service comes primarily from the Finnish Government, at â'¬1 million per annum. Some districts in Sweden also contribute to the financing of the contract.

Legislation and Regulation covering the provision of Ferry Services

C1.17 Chapter 13 of the Finnish Maritime Code contains the provisions concerning the carriage of goods by sea.

C1.18 The Finnish Maritime Administration regulates and oversees the island services and the international PSO.

Vessel Safety

C1.19 The Finnish Maritime Administration is the authority responsible for maritime safety, winter traffic assistance, fairway maintenance, VTS and pilotage, hydrographic charting and the provision of ferry services to the archipelago communities.

C1.20 The Maritime Inspections Division of the Maritime Administration is in charge of the inspection and survey of ships and the port state control of ships sailing under foreign flags. The division conducts initial surveys of ships engaged on international voyages, approves ship and port facility security assessments and plans and inspects related security arrangements in collaboration with the Technical Division and the regional inspection divisions. It also approves the operational, technical and crew accommodation arrangements of ships and participates in the development of cargo safety.

Licensing

C1.21 The Ministry of Transport and Communications is the regulator for shipping in Finnish waters. The Ministry is responsible for:

• development, design and economy of passenger transport
• operating licenses for public transport, purchase contracts for services, tariffs
• ticket systems
• development of public transport information systems
• promotion of non-motorised transport

C1.22 The Finnish Maritime Administration finances its services for merchant shipping by charging its customers fairway fees. It also conducts official and public services which are financed out of the government budget. The Finnish Maritime Administration's annual budget is roughly 103 million euros.

Ports and Infrastructure

C1.23 The Finnish Maritime Administration purchases, either from the established state enterprises or other companies, the services needed to ensure unhindered shipping.

C1.24 The Finnish Maritime Administration is responsible for ice breaking operations as well as for maintaining and developing the waterways. The waterways are in good condition for existing traffic. The interconnections between inland waterways and those between inland waterways and the sea are, however, non-existent or insufficient.

C2. Lifeline Services

Lifeline services/ PSO

C2.1 There is one PSO route in Finland, and it operates between Finland and Sweden.

C2.2 The service is subsidised on the basis that it provides a vital link between Finland and Sweden which would otherwise be commercially unviable.

C2.3 It is considered a PSO because it abides by European Commissions guidelines for PSO tenders and arrangements.

C2.4 The Finnish Maritime Administration is responsible for defining the service as a PSO service.

Other lifeline services

C2.5 The mainland-islands and inter-island services are essentially lifeline services as they are vital to the livelihood of the island residents. They are, however, directly funded or provided by the government and are therefore not considered to be PSOs.

C2.6 These contracts are reviewed on an annual basis.

PSO/ PSC Services: How are they operated

C2.7 The current operator is a Finnish Shipping Company that operates under the Swedish flag.

C2.8 The PSO came into effect in 2003. Before that, the route was run by the Finnish Maritime Administration.

Regulator
C2.9 The PSO is monitored by the Finnish Maritime Administration.

C3. PSO/ PSC Services: Financial/ Commercial Support

Mainland-Islands Services
C3.1 Helsinki City Transport purchases ferry services between Helsinki and Suomenlinna. The Helsinki-Suomenlinna service receives direct funding from the municipal government.

C3.2 Permanent residents in the archipelagos travel on ferries for free, whereas tourists have to pay.

C3.3 The Finnish Maritime Administration is continually working on the optimal arrangement for ticket pricing and subsidy.

C4. PSO Service

C4.1 The current operator, "Passenger Express", is the only operator on the Finland-Sweden PSO route.

C4.2 The Finnish tax system is a form of subsidy to shipping companies.

C4.3 The PSO contract is for three years. The current one began in 2003 and will be re-tendered in 2006.

C4.4 The current contract was awarded after a competitive bidding process.

C5. Other Protections / Barriers to Entry

C5.1 Under a subsidy system introduced in 1992 to compensate shipowners for the higher cost of employing local seafarers, Finnish-flag cargo vessels with a domestic crew that trade to and from Finland in the international trade became eligible for the repayment of seafarers' income taxes and three to five percent of social security payments. This subsidy system, however, did not extend to ferries and passenger ships. (Under the Finnish Foreign Merchant Shipping Registry Act, only cargo vessels used primarily in international trade and passenger vessels not regularly calling at Finnish ports were eligible for state aid.)

C5.2 In 2002, the government of Finland granted full restitution of all social security costs for seafarers, but again only for those employed on Finnish-flag cargo ships for seafarers. Another provision, which also applies only to cargo ships, allows up to 50 percent of a ship's crew to be hired from non-European Union countries.

C5.3 On March 2002, the European Commission approved a Finnish scheme providing a subsidy to passenger vessels. The subsidy scheme gives EU seafarers working on board Finnish passenger ships a 97 percent reduction of withholding tax on their marine work income.

C5.4 The tax relief benefits Finnish passenger vessels engaged in international transport and calling regularly at Finnish ports.

C5.5 Also in 2002, after much debate, Finland's parliament ratified legislation implementing a tonnage tax system. The measure followed Norway's tonnage tax rules, whereby only revenues retained in a company for future investment in its shipping operations qualify for the tonnage tax. Those paid to shareholders in the form of dividends would be taxed at the normal corporate income tax rate of 29 percent. (Norway's tonnage tax system allows taxes to be deferred until such time as profits are distributed.)

C5.6 Ferry operators complain that the tonnage tax system does not cover revenue from duty-free sales on passenger ships. Shipowners in Finland are also unhappy with the fact that the provision granting full refunds of crew taxes and social costs, and the one allowing up to 50 percent of a ship's crew to be hired from non-European Union countries, are restricted only to cargo vessels. Despite the negative feedback from shipowners, the government of Finland said it had no plans to modify the tonnage tax system.

C5.7 Finland announced in November 2003 that, effective from January 2004, it would revise its maritime policy to allow owners of both cargo and passenger vessels to receive a full refund for tax and social security payments made on behalf of seafarers. The "net wage" system, based on the Swedish model, also permits funds received from ship sales to be set aside untaxed if they are used to acquire replacement tonnage.

C6. EU Maritime Cabotage Rules

C6.1 The current PSO (international) contract is compliant with the EUPSO regulations.

C6.2 The other services to islands, however, are still wholly owned by the central government or local authorities, and are not tendered.

C6.3 It is intended to move towards open tender for all island ferry services in Finland. This will, however, be likely to take at least three years. The Maritime Administration believes that local commercial operators will have the capabilities to provide the service, but the tendering and contracting process will take time to ensure maximum efficiency.

Source

http://www.trans-inst.org/EuropeanMaritimePolicies.htm#finland
Ministry of Transport and Communications Finland. Public Transport Performance Statistics 2001. Reports and Memoranda B5/2003
The Finnish Maritime Administration: http://www.fma.fi/e/

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