Brussels – ‘Not state aid if government pays market price’ for Selmun Hotel

Former Air Malta chairman calls for imposition of public service obligations

The European Commission has confirmed with MaltaToday that the government’s planned acquisition of Selmun Palace hotel does not constitute state aid if the purchase is based on market prices.

National airline Air Malta – in its fourth year of a restructuring process as mandated by the European Union – is expected to “transfer” its shuttered hotel, the Selmun Palace, to the state, which will then divest itself of the property.

Green Party Alternattiva Demokratika dubbed the move a ‘dangerous game’ with public finances, adding that there is “a great risk that these deals be declared as hidden state aid” by the European Commission.

But the European Commission confirmed that this would not be the case if the acquisition reflected market prices.

“A sale would not involve any state aid if the government paid a market price for acquiring the property,” a spokesman for EU competition commissioner and Vice-President Joaquín Almunia told MaltaToday.

He however pointed out that the Commission “has not assessed if this is the case”.

This was confirmed by a tourism ministry spokesperson who told MaltaToday that Air Malta’s divestiture of Selmun Palace is part of the 2012 restructuring plan which was agreed to by the EU Commission under the previous Nationalist administration.

“Any transaction will be in accordance with EU rules and in line with past practices which have already been screened by the European Commission in similar situations, when other Member-state airlines transferred part of their portfolio of assets to their respective governments.”

This, the spokesperson added, “is only one of a number of measures

that will be implemented in the coming months which will ensure that the airline returns to commercial viability by 2016.”

According to Air Malta chairman Maria Micallef, “it would be shortsighted for the government” if it were to pay Air Malta handsomely.

Finance Minister Edward Scicluna has gone on record saying that Selmun Palace hotel will be bought at market prices. The government intends to privatise it.

The spokesman for the Competition Commissioner was not in a position to comment on whether a recent government-to-government deal on Enemalta’s petroleum division constituted state aid and whether this was permissible according to EU rules.

The Maltese government has set up two separate companies, Petromal and Enemed, to take full control of Enemalta’s petroleum division, which until recently was in a privatisation process that never materialised.

“The Commission is not in a position to comment on this. It is always up to the parties to a transaction themselves to verify whether or not they should notify it to the Commission in line with the applicable merger control rules,” the spokesman said.

Public service obligations

Underlining the airline’s strategic importance to the country’s economy, former chairman Ray Fenech said the government should enter into new negotiations with the European Commission to impose public service obligations on Air Malta. “Tourism apart, Air Malta is the only link to a number of important destinations which have a strategic importance for our economy,” he told MaltaToday, adding that Malta being an island Air Malta’s role in providing a link to continental Europe and the rest of the world is vital.
EU Member States may impose public service obligations (PSO) on air routes which are vital for national and regional economic development.

Such a deal would allow the government to compensate Air Malta for operational losses if no other airline is interested in operating the route on which the obligations have been imposed. EU regulations demand that the selection of the operator must be made by public tender at EU level.

Fenech, who in July tendered his resignation for personal reasons, added that the EU has reached such agreements with other countries, including routes from Dublin to Kerry and Donegal, routes between the Greek mainland and the Greek islands, routes between the Italian mainland and Sardinia, routes between the French mainland and Corsica, certain domestic routes within Norway, Sweden and Finland, and routes to the Scottish highlands and islands.

“As long as there is no political interference and the company prioritises efficiency and commercial viability, Air Malta will be capable of serving this function. This could be done within the frameworks outlined by the EU and without cutting corners,” he said.

Asked whether the purchase of Selmun Palace by the government constituted indirect State Aid, Fenech said that the deal was within the parameters set by the european Commission’s restructuring plan, which stipulate that Air Malta can no longer receive state funding for the next eight years.

The Commission’s restructuring programme, which started back in 2011 aims to bring Air Malta back to profitability by 2016.

“The government owns Air Malta and it’s a good idea if the government retakes the ground rent to facilitate the process of selling Selmun Palace to a private entity,” he said, adding that this did not equate to state aid.