Reclassification of Shipyards leads to increase in company value
A reclassification of Malta Shipyards in line with a Eurostat recommendation has led to an increase in the company’s value added – and its contribution to the gross domestic product, compared to what had been announced in March.
According to the latest revision, the shipyards now had an operating surplus of €24 million in 2008.
The reclassification necessitated a methodological change in valuation of the value added generated by Malta Shipyards Ltd due to the application of the cost approach.
The revised GDP aggregates, incorporating the effect of the reclassification, together with a small number of other revisions, were transmitted to Eurostat.
The NSO, following extensive discussions with Eurostat, Malta Shipyards Ltd and the Ministry of Finance, the Economy and Investment, has reclassified the Malta Shipyards from the non-financial corporations sector to the general government sector.
The discussions took place following the publication of GDP figures on 11 March 2009, after new information came to light, the NSO said.
Now, in line with the European System of Accounts (ESA 1995), the difference in the way output of market and non-market units is calculated gives rise to a change in value added, and therefore GDP.
The reclassification was effected after Malta Shipyards’ revenues failed to cover the required 50% of production costs.
The 50% criterion is a convention used when determining whether a unit is included within the general government sector or not. This criterion states that if less than 50% of production costs are covered by sales, the institutional unit is to be classified within the general government sector.
On Eurostat’s recommendation, the NSO reclassified the company and included it within the general government sector. During 2007, the ‘sales’ of Malta Shipyards Ltd covered 49.2% of the total ‘production costs’.
Additionally the company lost its ‘autonomy of decision in the exercise of its principal function’ when government took the decision to liquidate and close down the enterprise. The process leading to the liquidation of the company started in 2008 and is expected to be finalised by the end of 2009. Reflecting this course of events, the reclassification of Malta Shipyards Ltd to be included under general government for statistical purposes has been introduced from the first quarter of 2008.
Linked with this reclassification is the issue of Malta Shipyards Ltd paying substantial amounts to its employees in the form of early retirement schemes and voluntary redundancy schemes during 2008 and 2009. Four different schemes were offered to employees. The early retirement scheme A is classified as ‘Social Benefits’ as this particular scheme was linked to the collective agreement.
On the other hand, the voluntary redundancy schemes B, C and D offered to employees were not linked to any collective agreement and are classified as wages and salaries. The treatment of these exceptional payments is in line with ESA 1995 which states that wages and salaries in cash include ‘exceptional payments to employees who leave the enterprise, if those payments are not linked to a collective agreement’.
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