Brussels is watching Malta's national broadcaster closely after receiving a formal complaint that Public Broadcasting Services is using public funds to subsidise its commercial activities.
The EU executive is investigating PBS following allegations that an annual €1.16 million (Lm500,000) government grant - specifically aimed at programmes that provide a public service - is being used to finance other 'commercial' activities, including television programmes.
European Commission sources told The Sunday Times that such a situation would be in breach of EU rules.
"The Commission received in October 2006 a complaint concerning the financing of the Maltese public service broadcaster.
The Commission has been assessing the complaint but has not adopted a formal position at this stage," the sources said.
The EU has not revealed the source of the formal complaint since the complainant did not explicitly permit the Commission to divulge his identity.
The sources explained that if the enquiry establishes any wrongdoing over the use of public funds within PBS, the Commission will have no option but to launch an infringement procedure against the Government.
Since this is a case of competition law, PBS could also be fined for its actions. The national broadcaster currently falls under the jurisdiction of Investments Minister Austin Gatt, who is responsible for state companies.
According to EU rules, state funding for public television stations is governed by strict rules and no public money may be used for commercial programmes since this distorts the level playing field with the other private stations.
Following the restructuring of PBS a few years ago, the Government had decided that the company should no longer rely solely on TV licence fees for funding, amounting to about €4.6 million (Lm 2 million) a year.
The national broadcaster therefore received an annual Government grant of €1.16 million through the state coffers to finance 'quality programmes'. This is also known as the extended public service obligation, which falls under the responsibility of Culture Minister Francis Zammit Dimech.
However, according to information reaching the Commission, in the year 2004/2005 the station failed to use 33 per cent of this subvention on programmes and instead used some of these funds for other purposes including 'commercial operations'.
One of the major issues being investigated by the Commission is the transparency and accountability of how public funds are being used by PBS, the sources said.
"At present, no one knows how these funds are being used by PBS and who is getting what, which programmes are getting government subsidies, and which aren't. This is very important information, to get to know if public funds are being used according to EU rules."
EU broadcasting rules state that there should be "a clear separation of accounts between public service and purely commercial activities and the necessity for public broadcasters to respect market principles as regards their purely commercial activities".
Just a few days ago, the European Commission launched a consultation process for member states intending to clarify further the rules over how public funds are to be allocated and spent by public broadcasters around the EU.
The Commission said that among the key issues to be tackled are the public service remit in the new media environment and control of over-compensation. The Commission said that it intends to come forward with a formal proposal later this year.
Over the past few years, the Commission has handed down 20 decisions to clarify the application of state aid rules to the broadcasting sector.