Taxpayers are subsidising gas distributors by 13c3 per kilo for any loss in sales below 2013 levels, under a 15-year agreement allowing State aid, The Sunday Times of Malta has learnt.
This rate translates into a subsidy of €1.30 on 10kg cylinders, €1.60 on 12kg and €1.99 on 15kg. The first payments for 2014 were handed out in recent weeks with the amounts varying between €3,000 to over €20,000 for each distributor, sources said.
Though under EU rules State aid is forbidden, exceptions may be made if a particular sector is declared as being of “general economic interest”. The government has applied this measure to 31 gas distributors offering door-to-door service. The decision was justified on the grounds that it wanted to guarantee this service even in remote areas not deemed to be commercially viable.
Though the Energy Ministry has not revealed the amounts paid out, EU law states that this cannot exceed the so-called ‘de minimis level’, which is equivalent to €500,000 over any three-year period.
The PSO agreement was signed on May 20 last year, but its existence was only revealed recently by this newspaper. Sources said the compensation mechanism was part of an “act of entrustment” which distributors signed with the Energy Ministry in May last year. It states that the subsidy will be based on the number of kilos sold by distributors after 2013.
Does this mean that if I render a nationwide service, other distributors will claim compensation?
“Any reduction of kgs sold will be compensated at the rate of 13c3 per kilo or at any other earning per rate if this changes from time to time,” the agreement states.
Last year, compensation only covered the seven-month period from May to December, meaning that the overall amount this year is set to increase.
The agreement also stated that each of these 31 distributors must operate in specific territories, only these are referred to as districts. However, a number of distributors who spoke to this newspaper but preferred to remain anonymous said that contrary to the conditions of this ‘act of entrustment’, no territorial restrictions existed in the licence granted to them by the Malta Resources Authority.
They also noted that one of the conditions in the government notice announcing the PSO published last month stated that distributors had to “organise, manage and operate on a weekly basis a universal door-to-door distribution of LPG cylinders throughout the entire territory of the Maltese islands by means of an appropriate distribution vehicle”.
“Does this mean that if I render a nationwide service, other distributors will claim compensation due to loss in sales as I would have been deemed to have entered their territory?” a distributor asked.
Distributors also asked whether the PSO would encourage some of them to under-declare sales, to enable them to obtain a higher annual subsidy in return.
The agreement states that when the PSO expires in 2029, the 31 distributors will receive a final and separate payment – over and above the annual subsidy. Sources said that distributors will be entitled to about €200,000, though the amount will vary according to the area in which they operate.
In the meantime, the MRA last month awarded a number of licences to new distributors who will be in direct competition with the existing 31 door-to-door operators.
Though the market has been liberalised, a number of distributors have raised questions over whether the PSO agreement may distort competition.