The Scottish Government

« Previous | Contents | Next »

Listen

3. Public Service ObligationS ( PSOs)

3.1 As a first step in supporting identified lifeline services, governments can, under EU regulations, identify routes where Public Service Obligations ( PSOs) apply. Where a PSO is established, governments can impose conditions on ferry companies who operate, or seek to operate, services on these routes. While under such conditions the government does not provide any subsidy to operators - and does not intervene with the numbers of operators who seek to enter the market - they can be used to regulate the market to encourage stable commercial operations that fulfil the aspirations of the government.

3.2 Typical of these conditions will be a requirement that any operator will offer services across the week - and across the year. The objective of such arrangements is to provide protection to operators on the route by preventing third party operators from cherry picking the profitable peak season services.

Definition of the Public Service Obligations
3.3 There are both ex-post and ex-ante definitions for the minimum level of services that the governments, central or local, believe ought to be provided.

3.4 An ex-ante approach is where governments pick routes and services that they believe would not have been provided at the socially optimal level and quality. In many of the countries, PSO routes were routes from which private operators withdrew as a result of rising costs and/or dropping demand. When the government intervened to continue and secure the services, the PSO or PSC requirements often reflected historical patterns and practices.

3.5 In some instances, governments may also design whole services and then tender them. This would be the case in Sweden, Denmark and Norway, where islands and cross-fjord ferry services are considered part of the national/ regional/local road networks.

3.6 An ex-post approach allows the market to identify non-commercially viable routes, and then the government comes in and procures the services. Greece define their PSO routes in a way that is similar to how bus services are tendered in the UK. The government is required to identify at the beginning of each year which services are to be provided commercially and which will not. Operators of non-subsidised services are required to apply and register for routes at the end of each year. Tendered services are defined as those that are not applied for by commercial operators in the free market.

3.7 In practice, a similar situation exists in Japan, where any operator operating in the "designated sea routes" to off-shore islands can apply for a subsidy out of the national "remote islands sea grant". The government then divides up the subsidies based on the applications as well as the level of competition on each of the routes (routes where there is more than one operator are, in practice, not eligible for the subsidy).

Minimum Service Requirements
3.8 The minimum level of service applicable in each country, and on each route, is often historically based. Many of the currently subsidised services have existed for a long time, either through direct ownership by the governments, or through negotiated contracts between the operators and the governments. In countries where ferry services have been directly provided by the government, the PSO is set by the government based on traffic patterns and perceived needs ( e.g. Scotland). In Ireland, the timetables are decided through thorough consultations with island residents and local authorities.

3.9 Based on our research, it does not appear that all countries have formal processes put in place to define the required services, service levels, and to determine which parts of the ferry service network(s) ought to be subsidised.

Introduction of Differential Pricing
3.10 As part of the recognition of minimum requirements on certain routes and services, it is a common practice for governments not only to set the schedule price of such ferry services, but also to require operators to provide discounted tickets for island residents In most cases, such a concession is reimbursed to the operator by the government.

3.11 Discounted prices are a way of protecting the PSO services by stimulating demand through lower fares for islanders. The governments then reimburse operators on the PSO routes the difference between discounted and regular fares.

3.12 Such practice is allowed Under Article 87.2 (a) ¹ Commission Decision of 22 June 1987 ( OJEC 87/359/ EEC). Direct aid reserved to certain social categories, including island residents, is allowable under the legislation.

3.13 The legislation, however, prohibits any discrimination with respect to the nationality of the residents, and the transport aid granted to residents of an island must be open to every citizen of the European Union residing on that island, not only nationals.

Non- PSO Lifeline Services
3.14 Not all lifeline services are secured under PSOs.

3.15 In Spain, three routes are designated as Public Interest Services that do not fit strictly into the definition of PSOs. For each Public Interest Service route, there is a contract in place to safeguard a minimal level of service. In addition, operators who are not the Public Interest Service contractor can also provide services and receive subsidy (bonus to tariff) from the government for every archipelagos resident transported. There is, however, no restriction in terms of timetables, routes, or minimum levels of service imposed on these non-contracted operators. The minimum requirement for operation is strictly associated with safety standards. There are, however, imminent changes to the Spanish Royal Decree and minimum service provisions ( PSOs) will be imposed on the Public Service Lines in due course.

3.16 In Finland, 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. However, the plan is 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 maximal efficiency.

3.17 In Denmark, BornholmTrafikken is a state owned ferry company that operates passenger and freight lifeline services to and from Bornholm. The Ministry of Transport has direct responsibility for operating Bornholm ferries, which is the last remaining transport company on the Danish budget.

« Previous | Contents | Next »