A deal has been reached on State aid for gas distributors. Photo: Chris Sant Fournier

Gas distributors have won a concession to receive government subsidies for a 15-year period in return for providing a door-to-door service even in remote areas not deemed to be commercially viable.

Though the government would not say how much the deal will cost the exchequer or the amount that each distributor will take, EU law states that this cannot exceed the so called “de minimis level”, which is equivalent to €500,000 over any period of three fiscal years.

The decision to grant what is known as a public service obligation applies to 31 distributors who enjoy territorial exclusivity and are thus obliged to sell their product in specified zones.

In a notice published in The Malta Government Gazette of March 17, the decision to grant the PSO was justified on grounds that energy poverty in Malta was above the EU average.

The government said the number of households unable to keep their home warm had doubled since 2005 and, by 2011, stood at 21.7 per cent. The trend was more pronounced among low-income earners, the elderly and single parent households.

The government therefore felt that secure access by consumers across the whole territory of the Maltese islands to LPG portable cylinders was of “general economic interest”.

If a service is declared to be in the general economic interest then payments may be made

This meant that State aid, which would otherwise be prohibited under EU law, could be given. This form of special arrangement is already in place in other sectors like the Gozo ferry and the State broadcaster.

“Under both Community law and Maltese law, there is a general principle which bans EU members from giving State aid. The idea here is that if a State makes a payment to a private operator, this could distort competition. However, if a service is declared to be in the general economic interest then payments may, in certain circumstances, be made to private operators,” an expert in competition law, who preferred to remain anonymous, said.

Parties tightlipped on level of subsidy - Deal announcement made two weeks after strike action

He pointed out that an arrangement based on territorial exclusivity was contrary to competition law because it was not permissible for markets to be carved up into separate regions. Still, he noted, an exception could be made if the full application of the Competition Act would be deemed as obstructing “the performance, in law or in fact, of the particular tasks assigned to them [distributors]”.

The PSO arrangement was announced two weeks after gas distributors affiliated to the Malta Chamber of Small and Medium Enterprises – GRTU went on strike. The agreement is backdated to May 20, 2014.

The industrial action was taken in protest against the granting of five new licences for fixed-point sales of gas and two for distribution. The strike action was lifted when the government promised to publish its policy for the sector.

The dispute had been dragging on since 2008 when Liquigas requested a ruling on a 1992 agreement that gave distributors territorial exclusivity.

New distributors will be able to operate but they will not benefit from the subsidy

In its decision in January 2013, the Office of Fair Competition declared that the deal signed with Enemalta at a time when it enjoyed a monopoly was null. Since then the issue had been left unresolved.

Asked by this newspaper to specify the annual level of subsidy, both the Energy Ministry and the GRTU declined to give any details. They argued that a PSO arrangement was the only way to make GRTU distributors cover specific areas that were not financially viable within the prevailing competitive market. As for the level of subsidy they said the amount was based on a predetermined formula which would ensure that distributors recovered their operational costs and made a reasonable profit as obliged by law.

A spokesman for the Energy Ministry said new distributors would be able to operate but they would not benefit from the subsidy as they would not be obliged to render a service in every part of the island.

He added that the agreement addressed what he described as the “anomalous” situation inherited from the previous government in the wake of the 2013 ruling.

Under the terms of the PSO, distributors are bound to provide an efficient customer care service and guarantee consumers a choice of products from all suppliers operating in the market.