22 March 2006

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Business Today

Public service obligation money is Gozo Channel’s life jacket

By a Special Correspondent

The Gozo Channel accounts for 2005, published by government last week show that the company registered a profit of Lm273,000 which is a marked improvement from the loss of Lm10,000 experienced in the previous year and hefty losses of Lm989,000 and Lm853,000 respectively in 2003 and 2002.
At first glance the company seems as if it is on course to become financially viable but a closer analysis shows that this is not the case. The company managed to make a profit because the income from government under the Public Service Obligation has increased to Lm1.5 million from the Lm725,000 paid out in the previous year.
Gozo Channel is a company that has a social obligation of providing a link between Malta and Gozo. For this obligation to continue, even if it may not always make commercial sense, it is only fair that government on behalf of the nation should pay for this comfort.
The number of passengers, motor vehicles and commercial automobiles that crossed over decreased in 2005 compared to 2004. Yet gross revenue increased. In the absence of a breakdown of revenue items, one may conclude that this happened because there was a price hike in the fares.
The fare subsidy which is revenue forgone on sale of subsidised tickets has also grown. This correlates to the increase in the number of Maltese who own property in Gozo and enjoy some benefits in Gozo Channel travel costs. Moreover, the introduction of season tickets and different fare rates at different times for ferry crossings has not yet brought up the numbers to impact the revenue side.
The costs of running the Company have also collectively gone up. However, through a further explanation, given at the presentation, the administration costs have gone down by 18% compared to 2002. Mainly as a result of less marketing costs, telecommunications and training costs. Other costs like salaries have increased slightly whilst directors’ fees remained constant and a saving of Lm1,000 was also registered in rents. The trend in administration costs shows that certain decisions taken three years ago are being reflected only now.
However, the cost trend analysis shows the operating costs are increasing. Although crew costs and other expenses decreased, there was an increase of 20 per cent in fuel expenses when comparing 2002 against 2005. Moreover, repairs and maintenance costs have also increased. This shows that the wear and tear on the ships has started to manifest itself now that they are adding to their age profile. The Ministry for Information Technology and Investments explained that action has been taken to lower the average consumption of fuel per trip, however the average cost of fuel per trip is still going up and this is an external factor.
Gozo channel shall continue to exist. The fact that the projects for the quays at Cirkewwa and Mgarr are continuing, are a clear indication that the main link between both islands will remain through the ferry boats.
Where the shareholders have taken certain decisions such as to decrease the administration costs, these are being reflected. However, the increase in operating costs is much more of an effort to master. The company has in 2005, also started to pay for charter fees and rent for quay and marshalling, and this will continue to affect negatively the company’s finances. Yet if these fees are payable to a Government Agency, it is moving money from one pocket to another.
If this was a commercial entity without any social obligation the obvious decisions would be to reduce the number of trips to save in fuel costs, reduce the number of ships needed for ferry crossings with the commensurate savings in payroll. However, this is not possible and that is why the government continues to offer a fare subsidy and pay for the Public Service Obligation which Gozo Channel performs.
Without the Public Service Obligation, the revenue which also includes the value of fare subsidy is not enough to cover the total costs.
There are only a certain number of people that cross over on a daily basis between the two islands. If there are more activities in Gozo, the number of Maltese customers crossing over to the sister island at weekends and in the evening will increase bringing a natural multiplier effect on Gozo’s economy.
However, it is the Public Service Obligation payment by the Government that is serving as the life jacket and keeping the company floating as a commercial entity. But the waters will get choppier as the fuel bills rise and ships remain the sole and comfortable means of transport between both islands.

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