National Audit Office: the Government should take into account that the cost of the ferry connection will increase

Ferries Tõll and Piret. Photo: Tairo Lutter

The National Audit Office analysed the cost of maintaining the ferry connection with Saaremaa and Hiiumaa, the relevant contracts, the quantity of the passengers and vehicles transported, and found that the Government should consider the fact that the cost of the ferry connection to the state will continue growing as a result of the general price increase and demand, and that the outlooks of maintaining the connection must already be weighed.

The price of the ferry connection has increased every year: the estimated cost of the transport of each vehicle cost the state ca 11.4 euros in 2007 and 18.3 euros in 2018 (the price per passenger increased from 4 euros to 8 euros). Thus, the cost per passenger (without considering inflation) has doubled and the cost per vehicle has increased by half since the start of the contract entered into with the previous carrier. The number of transported vehicles has increased by ca 60% at the same time. Wages in transport have almost doubled since 2006 and consumer prices and the price of diesel have increased by almost half, so the price increase did not start with the arrival of the new ferries and the new carrier.

The amount of the subsidy will presumably increase until the expiry of the effective contract in 2026, because the service price is influenced by wages in the transport and warehousing sector, the consumer price index and the price of fuel.

The winners of the procurement for regular ferry services in 2014 were the joint tenderers TS Laevad and TS Shipping that submitted the tender with the lowest price. Calculations with both tenders and the actual change in the price indices that affected the cost of the service and the number of trips indicate that a contract awarded to Väinamere Liinid would’ve been more expensive for the state.

The ferries sail between the continent and the islands of Saaremaa and Hiiumaa almost as many times a year as during the times of the previous carrier, but more passengers and vehicles are transported and ticket income has increased. In 2011 the Government set itself the goal to create competition, save money and achieve better quality in the organisation of ferry transport. Competition did emerge, as two tenderers participate in the competition for regular services. In comparison with the previous contract (for the period of 2006-2016), the provision of the service hasn’t become cheaper as a whole, but four large new ferries are used for the connection instead of the previous three and the number of passengers and vehicles carried from 2016 to 2018 has increased by 10 and 15%, respectively, and the average number of passengers per trip has also increased.

The rapid increase in demand has increased the state’s expenses also during the time of the new carrier. The subsidy paid to the new carrier in 2017 was approximately the same as in 2015, i.e. in the last full year of operations of Väinamere Liinid – 15.8 and 15.4 million euros, respectively. Despite the continuing increase in the number of transported vehicles, the state could not foresee the increase in demand during the summer season, as a result of which additional trips with the third ferry were ordered from the carrier on the Virtsu-Kuivastu route in 2018. The state paid 1.71 million euros in total for the additional trips of the ferry Regula and the total annual cost for the state increased to 18.3 million euros. Additional trips were also ordered for summer 2019. The increasing trend in demand must be taken into account when the ferry service is planned in the future.

In the next three years, it must be decided what the future of maintaining transport connections with big islands and the organisation of ferry traffic after the expiry of the contract in 2026 will be like. If the state wants to use the option to buy out the ferries after the expiry of the contract, the carrier must be informed about this on 30 September 2022 at the latest and the money required for this must be allocated in the state budget strategy (SBS) and, on the basis of this, in the 2026 state budget at the latest. As 106.4 million euros is obviously too much to be included directly in state budget expenditure, it is necessary to develop the respective financing scheme. Also, when ferry traffic is planned, it must also be kept in mind that although the volume of the trips described in the procurement had not been reached by 2018, the rapid increase in the number of passengers and vehicles has already resulted in the use of additional ferries and trips in the summer period.