The government changed the rules for subsidies for ferry services to Gozo drawn up in 2012, drastically increasing the funds taxpayers fork out, a Freedom of Information request by The Shift reveals.
Government costs for Gozo Channel services reached €10 million in 2022 following a revision of the rules through an addendum to the ‘Public Service Obligation Contract’ (PSO), seen by The Shift, in which the Transport Ministry and Gozo Channel agreed to a drastic revision of the ‘compensation mechanism’ to keep the State company afloat.
The additional agreement was signed in 2019 and will remain in place until the government adjudicates a new PSO tender. The last agreement expired six years ago, in 2017.
EU rules dictate that state aid to companies such as Gozo Channel can only be given following a public tender issued every six years and the tender should be open to all who want to provide the service.
According to the extension, the compensation mechanism now “reflects changes in costs due to the passage of time” and allows Gozo Channel to dip into millions of state subsidies for most of its trips between Malta and Gozo and into another pot subsidising the cost of fuel for these trips.
Financial data shows that while, until 2017, the government passed subsidies to Gozo Channel for less than €800,000 a year, the funds increased to €10 million in 2022 and are expected to increase further.
Additionally, the government is now also forking out some €6 million a year to subsidise the fast ferry service provided by two private operators. The service was not commercially viable in the long run, and the government had to intervene to avoid its collapse.
This means the total subsidies dedicated to ferry services between the two islands are expected to shoot up to €16.8 million this year.
Changes costing millions
According to the new addendum, the government was initially bound to assist Gozo Channel in providing the so-called ‘lifeline services’ consisting of some 18,788 passenger trips per annum.
This capping was removed in 2019, with the government forking out an additional €1,000 per trip over and above the ‘lifeline’ services for commuters needing to travel between the two islands.
The same subsidies were introduced for every trip made for cargo services, over and above the minimum of three per week.
Millions are also being given to compensate for fuel costs while an additional leased fourth ferry, the MV Nikolaos, is also being fully subsidised.
Despite its dependence on state subsidies, Gozo Channel is making no effort to streamline its operations and lower its costs, with the company continuing to employ more human resources than it requires, dishing out millions in direct orders in breach of public procurement rules and wasting hundreds of thousands of euros in the leasing premises from private businessmen close to the government and its chairman Joe Cordina.
The last six-year contract for ferry services between Malta and Gozo, won by Gozo Channel, expired in September 2017 when the government was obliged to launch a new competitive process.
Three attempts made between 2018 and 2020 were all struck down by the Court, as competitors cried foul play and the government’s calls were declared illegal.
This was because the Transport Ministry attempted to assign part of the subsidised service to a private company set up by the owners of the Fortina Group and Magro Brothers, tomato pulp producers.
Since the third cancellation of the PSO tender, its new publication has been pending for months.
Last February, Transport Minister Aaron Farrugia told parliament that the publication of a new tender was still “works in progress”.