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Appendix I Malta Case Study
I1. Ferry Legislation and Licensing
Background
I1.1 Malta is an archipelago consisting of the islands of Malta, Gozo and Comino. As such, sea transport is of particular importance to the country's movement of people and goods.
I1.2 The main means of transport between Malta and Gozo is a ferry service.
I1.3 Comino is almost uninhabited and consists predominantly of leisure traffic. There are also cruises and boats that go around the islands for leisure and tourism. These services (cruises and yachts) are private and/or commercial.
Subsidised ferry services, routes and carrying statistics
I1.4 The lifeline services between Malta and Gozo consists of roll-on/roll-off passenger service for foot passengers, car and car passengers, as well as cargo vehicles, including hazardous cargo. The passenger route runs between Mgarr (Gozo) and Cirkewwa (Malta). There is also a daily trip, mainly for cargo, to Sa Maison.
I1.5 The services are subsidised on the basis that transport between Gozo and Malta is instrumental to the well-being of Gozitan residents, and that the services would otherwise not be commercially viable.
I1.6 The Malta-Gozo lifeline service is the only passenger ro-ro service in the country. Although there are cruise boats and yachts that go along the coasts and to and from the islands, these are not capable of providing the lifeline service.
I1.7 Over 3.3 million passengers are carried annually between Gozo and Malta.
Vessels
I1.8 The vessels serving the Gozo routes are government-owned and belong to
MIMCO, the public entity that holds the Maltese government's assets.
I1.9 The vessels are chartered to the operators.
I1.10 The Gozo Channel fleet is the largest in the Maltese islands. Three ferries currently cruise between Gozo and mainland Malta.
License
I1.11 Different rules and regulations apply to ferries and leisure vessels.
I1.12 The Malta Maritime Authority is the body which oversees safety standards.
I1.13 Other than having to pass safety standards, there are no other licenses required of operators that wish to operate in Maltese waters.
Regulator
I1.14 The lifeline services are subsidised and regulated by the Ministry of Communications.
I1.15 The Malta Maritime Authority (
MMA) is responsible for port activities, and is also heavily involved with regulating the subsidised ferry services. The
MMA was set up as a distinct and autonomous corporate body to supervise the organisation of the primary maritime services. It was established by law in 1991 as a government agency and is thus vested with detailed regulatory powers. The Authority was set up to enable ports, merchant shipping and yachting centres to operate within a centralised framework.
Ports
I1.16 Ports belong to the
MMT, but are run by the ferry operator. Gozo Channel Company is the exclusive user of the ports in Gozo and Malta.
I2. Lifeline Services: Basis for Subsidies
I2.1 The Gozo Special Needs Assessment was finalised in May 2002 and recognised the movement constraints of goods and people. Because of Gozo's "double insularity", a special arrangement was made during Malta's accession to the European Union. Gozo is recognised as a separate island region.
I2.2 Improvement in transport and port infrastructure in Gozo are instrumental to business development and the population of Gozo. Most of Gozo's residents work in Malta. In addition, Gozo residents have to go to hospitals in Malta for medical services. The ferry services between Malta and Gozo are therefore considered lifeline services.
I2.3 These lifeline services are subsidised by the Malta Ministry of Communications on the basis that they would not have been commercially viable otherwise.
I2.4 Malta is able to use structural and cohesion funds as well as subsidising inter-island transport of passengers and agricultural produce on the grounds of reducing the disparities in the level of economic and social development between Malta and Gozo.
I3. Lifeline Services Operations
History of Government Intervention
I3.1 Gozo Channel had been operating the services between Gozo and Malta since before the current contract was in place. Previously, the government-owned company did not operate under a contract.
Operator
I3.2 Gozo Channel provides the lifeline services between the islands of Malta, the mainland, and Gozo.
I3.3 Gozo Channel was formed in 1979 to maintain, develop, and operate a sea transport service to and from Malta, Gozo and elsewhere which, by the carriage of passengers, freight and mail, would serve the national economy and interest of the Maltese Islands.
I3.4 Gozo Channel is currently a wholly owned subsidiary of Malta Government Investments Limited. There are plans to re-structure Gozo Channel, and privatisation exists as a possibility.
Service
I3.5 Gozo Channel operates a ro-ro ferry service between the Maltese Islands primarily on two main routes - one between Mgarr (Gozo) and Cirkewwa (Malta), the other between Mgarr - Gozo and Sa Maison - Malta. Crossings are regular and during peak periods and/or high season, they become more frequent to cope with demand.
I3.6 Passenger and vehicle service is provided all year-round between Mgarr Harbour (Gozo) and Cirkewwa (Malta) including Saturdays, Sundays and Public Holidays. There is a night service on weekends (Friday & Saturday) and on all days of the week during summer.
I3.7 The Mgarr/Cirkewwa route is oriented to foot and car passengers including private cars, although commercial vehicles are also carried on this route.
I3.8 The Mgarr/Sa Maison route is cargo oriented, and normally operates once a day on a return basis, Mondays to Fridays. Passengers and private cars are also carried on this route, the latter when space permits.
Vessels
I3.9 Gozo Channel Company charters the vessels from the Government.
I3.10 The current ferries have ramps at both ends, which allows for more efficient loading and unloading. These vessels are designed especially for short sea trips and to optimise safety and comfort.
I3.11 The lifeline routes are not limited to these particular vessels. Most vessels of similar size and nature will be suitable for the Maltese ports and waters.
Fares
I3.12 Under the Malta Maritime Authority Act, fares are regulated by the Minister for Competitiveness and Communications, in consultation with the Malta Maritime Authority.
I3.13 The
Subsidiary Legislation 352.19: Gozo Passenger and Goods Service (Fares) Regulations established in January 2004 determines the fare schedule for commercial vehicles operating to and from Gozo. The regulations came into effect on 1st June, 2004.
I3.14 Passenger fares (except for Gozitan permanent residents and holders of "Karta Anzjan") are regulated to remain constant at Lm2.00 from 2004 through 2006. During the same period, Gozo resident passenger fare is kept at Lm 0.50.
I4. Subsidised Services
The Contract
Contract Terms and Duration
I4.1 A Public Service Obligation contract (
PSC) was signed between Gozo Channel Ltd and the Maltese Government. The contract granted the ferry operator exclusive rights to operate the services between Gozo and Malta.
I4.2 The
MMA said the current contract was drafted after consulting with other
EU countries on their subsidised ferry services, including input from the Scottish Executive.
I4.3 The current six-year contract came into effect in April 2004.
I4.4 In the first five months of operation, Gozo Channel Ltd. received Lm700,000 of direct subsidy aid from the government.
Fares
I4.5 The tariffs, and subsequent subsidies to the operator, are calculated by the
MMA and Ministry of Competitiveness and Communications based on the operating costs for the lifeline services.
I4.6 While fares are set and regulated by the Minister for Competitiveness and Communications, the operator can ask for a revision of the tariff structure at any time during the contract period.
Ports
I4.7 Gozo Channel Company currently operates the ports under a separate agreement with the
MMA.
I4.8 Although separate, the port operation contract is tied to the Public Service Obligation Contract, since the contracted operator is currently the exclusive user of these ports.
Risks
Competition Risks
I4.9 The risk of competition along the lifeline routes has been minimal as there is no other Maltese operator with the vessels and capacity to operate the services.
Cost Risks
I4.10 The fluctuations in peak and off-peak demand are considered to be a big risk, borne by the operator. Extra trips in addition to the basic schedule with minimum service incur extra operating costs to the operator that are not included in the original calculations.
I4.11 The transport of dangerous cargo can also create an additional cost burden. Dangerous cargo which cannot go on the same boat with passengers generates extra trips, and hence extra operating costs. The Maltese Government is considering subsidising the transport of dangerous goods in a separate contract outside of the
PSO.
Other Risks
I4.12 Inclement weather risks are reduced when the operator is no longer penalised for non-sailings resulting from adverse weather conditions.
I5. Subsidised Services: Financial and Commercial Support
Subsidies
I5.1 Fares on the Gozo ferries are regulated by the Maltese Government. Gozitan residents and their vehicles benefit from lower pricing. Gozitan residents' tariffs are subsidised and they pay one-third of the non-subsidised fare.
I5.2 Gozo Channel Ltd. receives direct government subsidies that make up for the price differential between Maltese passengers and Gozitian.
I5.3 Inter-island passenger ferry transport is
VAT-exempt.
I5.4 State aid will continue to be granted to the transport of agricultural goods between Gozo and Malta, although it will be phased out after five years. This will eventually be replaced by a type of assistance that is not operating aid.
I5.5 Payments are made to the operator every three months.
I5.6 The operator is penalised for delays and non-performance, up to a cap. The type and size of the penalty is decided after an arbitration process between the Malta Maritime Authority and the operator. For safety reasons, the operator can no longer be penalised for non-sailings resulting from inclement weather conditions.
I6. Subsidised Services: The Tendering Process
I6.1 The current public service contract, the first one since Malta's accession to the European Union, was not tendered.
I6.2 The Gozo Channel Company was awarded the exclusive contract. It was also the only ferry operator in the country.
I6.3 The
PSC will be tendered openly by 2010. There is currently no plan in place to prepare for the tender. As the first contract only began in 2004, the Maltese Government is going to observe the current contract and see what the problems and difficulties may be before drafting the new tender and contract.
I6.4 Malta has amended its public procurement regulations to be in line with relevant European Commission directives. The revised regulations were to go into effect in 2004.
I6.5 The Malta Government anticipates that bids will come primarily from within the European Union (but outside of Malta). Apart from the Government-owned Gozo Channel Company, Malta lacks the domestic capabilities to supply these services.
I7. Malta and the
EU on Maritime Cabotage
I7.1 A special declaration was made during Malta's accession to the
EU that recognises Gozo as a separate island region. In addition, social arrangements were negotiated to enable Malta to use structural and cohesion funds as well as to subsidise inter-island transport of passenger and agricultural produce on the grounds of reducing the disparities in the level of economic and social development between Malta and Gozo.
I7.2 Three special arrangements on transport-related issues have been negotiated between the Maltese government and the
EU. The outcomes confirmed that payment of government subsidies for the transport of Gozo residents on domestic ferries is allowed. Subsidies are allowed to the extent that they benefit Gozo residents directly. Subsidies to the ferry company itself are also allowed to the extent that they cover the additional costs incurred by the company to provide a public service for Gozo residents, such as night trips, even if this is not necessarily commercially viable.
I7.3 While Malta had to adopt
EU maritime cabotage rules and liberalise their island ferry services, it was agreed that the first contract ought not be put to an open tender. Malta has until 2010 before it needs to openly tender the Gozo lifeline services according to
EC ferry
PSO rules.
Source
Phone Interview 17/112/2004 with Malta Maritime Authority.
Gozo Channel:
http://www.gozochannel.com /
Special Negotiations on Gozo and the
EU:
http://www.gozo.com/ugc/vol1no9/Negotiations.htm
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