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Neil Kay's website
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Introduction In addtion to background information, this page contains five blogs, just click on the links immediately below if you want to go directly to a blog. The reason they are on one page is that together they illustrate that there is more than one way to mess up both compliance with EC law and care for the public interest in the case of the Scottish ferry network. Even though the four tenders discussed below have been framed to supposedly comply with the same EC laws on competition and State Aid, the previous Executive (1999-2007) or its agencies have found different ways to fail to deliver the public interest in each case, despite clear and coherent advice being given to them over several years by responsible authorities. For an overview of the problems and suggested solutions, see this Presentation See also my view of what is likely to happen as a consequence of the Commission investigation into alleged State aid here The material below is split up into five blogs (see panel on right for other relevant material) Context Sarah Boyack (Minister for Transport) "Most recently we had the experience of the Northern Isles services tender. It was a useful exercise for the Executive to run through that process. The difference between the Northern Isles and the CalMac services is that there are an awful lot more CalMac services. We are well aware that the CalMac tender will be a more complex exercise.” (Transport and Environment Committee of the Scottish Parliament, June 2001) “Reporters note that the Executive points to the Northern Isles Ferry contract as being an example of a similar process being undertaken without the need for an independent regulator. However, as has been noted in further submissions from Professor Neil Kay, this contract is not yet operational, so the regime has yet to be proven effective in practice.” (Reporters to Transport and Environment Committee of the Scottish Parliament, Inquiry into Proposed Tendering of CalMac Services, September 2001) "The awarding of the new northern isles ferry contract is being delayed to give the Scottish Executive more time to ensure a smooth handover, transport minister Tavish Scott announced yesterday … Mr Scott said that after the recent Audit Scotland inquiry into the previous tendering process, he wanted the new six year contract to be financially sound …. NorthLink have now received £78 million in government subsidy for the ferry service they started to operate in October 2002, more than twice what was agreed in the initial contract" (Shetland News January 2006) The major issues here involve four separate tenders for ferry services under consideration by the previous Scottish Executive (1999-2007), in the context of EC Maritime Cabotage and State Aid law. Despite the fact that there are well established systems and processes by which tendering of such services could and should be carried out in an orderly and integrated fashion to protect the public interest, the four very different arrangements being made here by the Executive are ad hoc and flawed. Each tender, some of the dangers that the taxpayer, users and dependent communities are being exposed to, and updates on what is happening in each tender, are discussed further below. After a meeting in Brussels 18th July 2005, the previous Executive then reported that the European Commission saw no alternative to tendering the Calmac network. If Ducks could Pirouette is my response to that announcement In the debate in the Scottish Parliament on the Executive's proposed tendering of CalMac services (14th September, 2005), the Parliament voted in favour. My work and submissions were referred to frequently during the debate by Ministers and opposition MSPs but were not represented accurately by Ministers. The debate can be read in the Official Report, and my reply Comments on SE handling of Tendering for Ferry Services under EC law can be read here. This document summarises my criticism of the previous Scottish Executive's handling of all four tenders, indicates just some of the problems that may still arise, and signposts how a coherent and integrated set of proposals could still be developed here that builds on the considerable body of economic and regulatory experience in how to deal with regulated essential services in many contexts, including the UK. The subsequent updates and notes below regarding what is happening in each of these four tenders or proposed tenders should be read in conjunction with the Comments letter. See also my original submission to the consultation process on the proposed CalMac tendering process, appendices in the submission include Gourock-Dunoon, the Northern Isles retender and the crucial question of Operator of Last Resort. The previous Executive's decision to tender without imposing PSOs (see also "What is a PSO?") prompted my Letter and Note to the Minister on this issue. Following the Commissions answer on this issue to a question by Alyn Smith MEP, I have added a note on the CalMac PSO answer It effectively means that the previous Executive's decision not to award
Public Service Obligations (PSOs) on CalMac and other lifeline ferry routes
means that any subsidy past present or future on these routes is in danger
of being judged illegal State aid under EC rules. In answers
to a series of questions filed by Jim Mather MSP, the Executive confirmed
it has not imposed, and does not intend to impose, PSOs on any of the
four tenders for which it currently has responsibility under EC Maritime
Cabotage and State aid rules, that is for the CalMac routes, the Northern
Isles routes, the Gourock-Dunoon route, and the Campbeltown-Ballycastle
route. In addition, the Executive's agency (SPFA)'s tendering process for a £5 million fisheries protection patrol ship discussed below (General issues blog for 3rd, 11th, and 12th June)comes under the same EC State aid laws (but not the same sector-specific laws) as the ferries and manages to display parallel problems. Similarly the Executive is now chosing to not protect domestic Scottish air fares and services through PSOs (Public Service Obligations), despite the fact that just about every other EC country does this for social or economic reasons (see Scottish Air PSOs). But here is one way that one route (Gourock-Dunoon) can be made EC compliant and serve the public interest..... This posted 6th August 2010: I have received a reply to my FoI reqiest on the question of Operator of Last Resort for Scottish Ferry services. See my comments here which should be read in coinjunction with the posts for 17th July and 18th July below This posted 18th July 2010: Some further public interest issues here regarding the government's failures on the question of Operator of Last Resort for Scottish Ferry services following on from yesterday's blog. This posted 17th July 2010: Information that was never intended to be published has come to light regarding the government's failures to deal with the crucial question of Operator of Last Resort for Scottish Ferry services and associated threats to the public interest. It also raises questions as to whether crucial information on these issues was deliberately withheld from Parliament and the public. See here This posted 6th-7th October 2009: Has the minister Stewart Stevenson sealed the end of the CalMac network? See here This posted 24th September 2009: The RMT has raised fears of threats to CalMac routes. See the press release and my comments here This posted 29th April 2008: Thanks to Stephen Boyd of the STUC in commenting on the Commission Decision on possible illegal State aid to Calmac and Northlink. See here. Yes "vindication", but what a waste This posted 28th April 2008: The Commission Decision on possible illegal State aid to Calmac and Northlink has been published - see here for comment This posted 9th April 2008: So why did PSOs disappear off the ferry agenda? See here This posted 29th July 2007: How to be conned: Part 2 I had promised not to go through line by line the so-called "academic study" (aka "Sutranet Work Package 2" hence SWP2) covered in my previous blog below, but like watching some terrible disaster unfold before your eyes it holds a terrible fascination and it is difficult to look away... more This posted 26th July 2007: How to be conned: The BBC this week carried a report about a publication calling it "A study carried out by Edinburgh's Napier University" more This posted 26th July 2007: RET and the EC-subsidised private lobbyists. As is often the case with such events, earlier this week the BBC reported two different stories about Scottish ferries (RET and private lobbyists on ferries) and fused them into one report. The result is some potential confusion. I will try to separate out the two stories.more This posted 27th November 2006: The Executive appears to be seriously considering a scheme that would end most ferry subsidies for the lifeline routes discussed on these pages, after advocacy of such a scheme by George Lyon MSP and Alasdair Morrison MSP. In the Scottish Parliament 26th October, Alasdair Morrison, Western Isles MSP asked the Minister of Transport to give "serious consideration to a ferry discount scheme" based on a "residency criterion that has been used so successfully for the air discount scheme". The Minister responded that he would be "happy to consider" this. Then the Argyll and Bute MSP George Lyon also suggested in the Scotsman 22nd November that the air discount scheme could be extended to ferry services. Problem? EC rules preclude more than one form of intervention to aid any one route. So if you subsidise air (and ferry) island residents using aid of a social character provision from the EC (as in the air discount case), you cannot then use, say, PSOs under the 1992 Martime Cabotage Regulation to subsidise other users on the same routes. That is why the Executive cannot apply the air discount scheme where it has PSOs on the air routes, as the air discount website confirms Any residents discounts scheme here means you would not
be able to subsidise other users (such as tourists, business users, commercial
vehicles etc) on the same route. Indeed, if the subsidy base is limited
just to passenger travel for those who are island residents (as in the
air case), it is arguable that you may not even be able to subsidise carrying
of any vehicles at all. In any event, this could reduce the base eligible
for subsidy on most lifeline ferry routes to a fraction of what it is
at present. But of course, the Executive have said they will not be imposing PSOs anyway (see discussion above under "Context", and in panel on right). They may see an "aid of a social character" scheme limited to island residents as the only option they have left themselves. Another shambles? Looks like it. This
posted 12th October 2006: The original story
on PSOs being necessary for subsidising lifeline ferry services, but the
Executive choosing not to impose PSOs, was run in the Herald August 4th,
see article and blog for August 4th below.
This
posted 10th October 2006: The Commission
confirms that subsidy may be granted to operators to cover the costs involved
in meeting PSOs (Public Service Obligations) on a route, and that the
imposition of public service obligations is therefore a precondition for
any subsidy to be given - confirming the points made in previous blogs
here below. But the Executive have already stated that "there
is no need to consider, nor do we intend to consider, issues arising in
relation to PSOs". The implications are discussed in CalMac
PSO answer. This posted 6th October 2006: The CalMac Annual Report published today states "the European Directive on maritime cabotage ... provides that State Aid may be paid only to fulfil a Public Service Obligation ..." Exactly. See also the blog for 4th August below and What is a PSO on this page. The Executive have decided not to apply Public Service Obligations (PSOs) to CalMac routes and services, which effectively renders any subsidy to these services potentially illegal. This must now count as one of the most incompetent decisions in a catalogue of incompetent decisions in this context by the Executive. This posted 5th October 2006: Press release by CalMac on formation of VesCo and splitting up of CalMac. Contrary to the initial BBC report (see blog here for 20th September below) VesCo is not to be located in Gourock, but in Port Glasgow. This posted 29th September 2006: Final confirmation (if any was needed) for why the rush to create VesCo (see blogs for 20th and 21st September below) given in Minister (Tavish Scot)'s answer to Jim Mather MSP's question today 29 September 2006 Jim Mather (Highlands and Islands)
(SNP): To ask the Scottish Executive how potential bidders for the
Gourock-Dunoon ferry tender can comply with the condition to demonstrate
that they have concluded several contingent contracts for a Gourock to
Dunoon ferry service with VesCo by 30 October 2006, as referred to in
the invitation to tender, given that VesCo does not yet exist (S2W-27966) Tavish Scott: We expect that VesCo will be in existence by the closing date for the submission of proposals for the Gourock - Dunoon service. This posted 29th September 2006: Unexpected support for the arguments I have been making with respect to the dangers to the public interest of cherry picking of ferry services has been found in Water, Ferries, and Exclusivity Provisions This posted 22nd September 2006: This sent by me in reply to yesterday's e-mail from the senior procurement officer (see yesterday's blog for 21st September below) Thank you for your e-mail of yesterday. However, I am sure you will agree that simply creating VesCo as a legal entity in the same month that bids are due to be submitted would not generally be seen as consistent with a competent and sound tendering process, and I am sure this would be a sentiment shared by any individual or body with experience of such tendering processes, whether firms, auditors or competition authorities, Thank you for your communication .... This posted 21st September 2006: It is rare for an academic putting forward a hypothesis to find support for that hypothesis the very next day. But a senior procurement officer for the Executive has done exactly that. In yesterdays blog I said "some, including me, have been asking how the Gourock-Dunoon tender (see Blog 5 below) could be regarded as a competent tender when the Invitation to Tender clearly states that bidders should demonstrate that they have concluded contingent contracts by end of October with VesCo, an entity which does not exist .... once this glaring flaw was pointed out, there would have been an incentive to rush through the split of Calmac into two, so creating VesCo as a cosmetic exercise with the Gourock-Dunoon route in mind before end of October". E-mail from Executive today: Professor Kay: Thank you for your e-mail dated 28th August 2006 to my colleague ... concerning the Gourock-Dunoon Invitation to Tender and specifically the concluding of various contingent contracts with VesCo.
The Invitation to Tender for the Gourock-Dunoon ferry service made clear that given the restructuring of CalMac into vessel and asset leasing company (VesCo) and operating company (OpsCo) had yet to take place, we were inviting tenderers to direct any questions relating to VesCo’s involvement in this tendering exercise to the Executive in the first instance. Earlier this week CalMac announced their intention to restructure the company from 1 October 2006. With effect from that date, the business of running the Clyde and Hebrides ferry services will be transferred to CalMac Ferries Limited. The ownership of the vessels and ports will remain with VesCo. VesCo will therefore be in existence by the closing date for the submission of proposals for the Gourock-Dunoon service.
I hope this is helpful Regards .... Senior Procurement Officer Comment: the crucial words there are "VesCo will therefore be in existence by the closing date for the submission of proposals for the Gourock-Dunoon service". In short, by creating as a legal entity the major body that the tenderers were supposed to have been discussing negotiating and concluding contracts with, in the same month (October) that these contracts are supposed to have been concluded, the Executive appear to think that this makes their tender process competent and legitimate. It does not take tenderers, auditors, and competition authorities to critique this, anyone with the slughtest knowledge of what its required to make tenders fair and and open will see this for the patent nonsense and charade that it is. The creation of VesCo in October merely as a legal entity is a purely cosmetic exercise designed to put a facade of respectability on the Gourock-Dunoon tender process, a process that is, for whatever reason, designed to prevent the emergence of any genuine compeition on this route.
This posted 20th September 2006: The BBC report that CalMac is to be split into two from beginning of October. A separate Press Release by CalMac confirms that this is indeed the VesCo / OpsCo split planned for tendering purposes with Caledonian MacBrayne Ltd as VesCo the asset owning company, and CalMac Ferries Ltd as the present OpsCo or operating company. The original BBC report also says that the asset owning company will "will retain actual ownership of ferries and remain based at Gourock in Inverclyde". NOTE the later BBC report was changed from the original version and drops any mention of where VesCo will be located.
But Gourock was not one of the locations considered for VesCo, the asset owning company in the Stage 1 report (Stage 1 report para 30). There were Inverclyde locations considered in Stage 1, but none of them were in Gourock. The report said "VesCo will ... require new office accommodation separate from the existing CalMac Headquarters in Gourock" (Stage 1 report para 5)
Why? because "VesCo should not be co-located with OpsCo, especially during any tendering process in which OpsCo will be involved" (Stage 1 report para 23). The Executive stated "The new ferry operating company (OpsCo) will continue to be based at CalMac's Gourock headquarters".
The reasons for separate geographic location of VesCo away from Gourock and OpsCo was to reduce the chances of OpsCo having an unfair advantage over other tenderers in any tender process if there was co-location (or even proximate location). In the absence of information to the contrary, it must be assumed that the management of both VesCo and OpsCo will be co-located in Gourock (contrary to the principles underlying the Stage 1 Report), at least for the moment, quite possibly both at or near the current headquarters and for the last month of the Gourock-Dunoon tender. Which raises questions that the Stage 1 Report had sought to resolve. And there is also the question of why this apparently sudden rush to separate into VesCo and OpsCo in October 2006 when VesCo has been mooted for about six years.
What has happened in the last few weeks is that some, including me, have been asking how the Gourock-Dunoon tender (see Blog 5 below) could be regarded as a competent tender when the Invitation to Tender clearly states that bidders should demonstrate that they have concluded contingent contracts by end of October with VesCo, an entity which does not exist. The Executive have opened themselves up to the criticism that they never bothered about this aspect of the contract because they never expected there to be any serious bidders in the first place (a criticism which I make in Blog 5 below). However, once this glaring flaw was pointed out, there would have been an incentive to rush through the split of Calmac into two, so creating VesCo as a cosmetic exercise with the Gourock-Dunoon route in mind before end of October. Questions like appointments to the Board and eventual location of VesCo (if it is to be separated from Gourock) are likely to be fudged at this point. In fairness, there may be other rational reasons for the form and the coincidence of timing of this decision, but it is difficult to see what they would be.
Will this split of VesCo and OpsCo work? Almost certainly no. As has been seen time and again with the Executive's tendering of lifeline ferries, their short term fixes just lead to more problems. Apart from the dangers of being open to accusations of compromising the integrity of any tender process by co-locating VesCo and OpsCo in Gourock (as implied in the original BBC report), there would have been, and will be, no chance of coherent and credible discussions between VesCo and bidders before end of October about use of assets for the Gourock-Dunoon tender. The original schedule for tendering of CalMac (which has slipped several years and which included the formation of VesCo) states there would be an expected lag of at least six months between Vesco Board appointments being advertised and "VesCo bedded in and able to deal with enquiries from bidders". Not only would there appear to be no six month lag between the appointment of VesCo Board members and being able to deal with bidders queries for any tender here, the latest publicly available information (Item 3) I have (March 2006) is that "there was no move yet with regard to Board appointments for VesCo". In any case, hardly time for any party that would have been interested in the Gourock-Dunoon tender to discuss, negotiate and conclude contingent contracts for various assets with VesCo.
What the Executive appear to have done is open themselves up to potential
complaints that they have further compromised the integrity of at least
the Gourock-Dunoon tender. I have argued to Parliament and the Executive
that it was possible to comply with EC rules without tendering CalMac
and Gourock-Dunoon, but if you do decide to tender, you must do it properly,
otherwise you are threatening these lifeline services that you are mandated
to protect. It looks like this shambles has just got much worse. This posted 11th September 2006: Short summary of concerns over the four tenders sent to the Minister here. This posted 20th August: the proposals for a ferry service at Ardyne Point are being resurrected, the implications for Bute and Cowal residents are set out here. Also, the issue of the dangers of the Executive not having thought through the question of Operator of Last Resort is highlighted by the parallel case of what is happening in rail, see here. This
posted 4th August 2006: The Herald Newspaper
today confirms that PSOs are needed to subsidise lifeline ferry services.
Stefaan De Rynck, EU transport spokesman in Brussels, said This posted 15th July 2006: Not only is the Executive failing to pursue PSOs for ferry services (see Tender 2 for 7th July 2006 below), they are failing to pursue PSOs for Scottish air services. See column on right for "Scottish Air PSOs". This
posted 8th July 2006: I have come across
a piece of evidence which could be invaluable here. I had always thought
thought it would be easier if Norway had to comply with EC State Aid and
Maritime Cabotage law given the importance and similarity of island and
fjord ferry transportation to them just as in Scotland. In fact, they
have to. As members of the EEA as EFTA members, the basic EC rules here
apply to them as well. The
EFTA Suveillance Authority Decision of 2004 shows how EC Maritime
Cabotage, State aid law, PSOs and the Altmark case can all be of relevance
in a geographically similar economy to the Scottish context. Note (a)
the central role of PSOs (not just tenders and PSCs) in determining subsidy
(b) the relevance of Altmark and the setting of PSOs - which I argued
last year in my alternative proposal, but which was dismissed by the Executive
(c) the importance of setting PSOs at indivdual route level, not
at the level of bundled routes. This posted 12th June 2006: The SPFA statement on the termination of the fisheries protection vessel contract can be read here, the report itself on the process can be read here. Best read in conjunction with the postings for 11th and 3rd June immediately below This posted 11th June 2006: In a maritime tender related under EC competition and state aid rules to the other four discussed here, Scotland on Sunday report that Scottish ministers are facing court action by an English shipbuilding firm, Appledore, over claims they sabotaged a £10m construction deal to protect a Scots-based company. The paper notes that even if ministers are shown to have done nothing wrong, taxpayers may now be forced to pay the costs incurred by Appledore in preparing the bid, understood to run "well into six figures". The paper also notes the row over the contract now means that the tender for the new vessel has been put on ice, potentially for up to a year. See also the posting for 3rd June below. Just add this fiasco to the long list of shambles over the other four tenders listed in the pages here. It is difficult to think of how the Executive could have found more ways to mishandle maritime tenders and the public interest if they had tried. This posted 3rd June 2006: The Glasgow Herald had reported earlier (May 26) that the Executive has halted its tendering process for a £5 million fisheries protection patrol ship because of concerns that European Union competition rules had been broken. The Minster responsible said: "I am unable to say when a new tender process will begin". In view of the fact that the Executive has had major difficulty
in both understanding, following, and listening to advice on European
competition rules in the case of the other maritime tenders discussed
in these pages, this news may be seen as about par for the course. In
the Herald article David Davidson, Conservative transport spokesman, said:
"This debacle underlines the executive's utter incompetence when
it comes to anything to do with maritime tendering." This posted 9th February 2006: A Herald leader and separate article reports on over 1000 requests made to CalMac under FOI legislation by a single firm of solicitors This
posted 4th February 2006: A BBC report
says; "Lord Robertson called for the bulk of CalMac routes - which
are being lumped together in the tendering process - to be broken up to
allow competition". (see postings for 2nd February under "Tender
4: Gourock- Dunoon" below) This
posted 10th January 2006: The
Scotsman reported
that fears were raised today in the Audit Committee of the Scottish Parliament
that ferry operators could attempt to cherrypick the best routes from
Scotland's lifeline services. The answer is that they could, that the
Executive could stop this, that the European Commisson recognises that
there are legitimate ways that governments could deal with this, that
the Executive have not put in place mechanisms to stop cherrypicking,
and that I warned about this in my original
submission to the consultation process on the proposed CalMac tendering
process in March 2005 (see the column on the right on this page here for
more on cherrypicking). This posted 6th January 2006: I finally received (delayed by Xmas mail and office closures over the period), this Reply from the Executive to my Comments letter to the Minister referred to above. I leave to others to judge to what extent it suggests that the detailed points made in my letter are being considered seriously. This posted end December 2005: Argyll and Bute Council is said to be planning significant increases in pier dues. If this is confirmed, it could lead to higher fares for users or increased subsidy burden on the taxpayer. In the case of the Campbeltown-Ballycastle and Gourock-Dunoon tenders, even just the threat and associated uncertainty of being held hostage to such new burdens could be the final straw that deters any remaining operator interest in these tenders. Clearly the council must publicly clarify its position on this at the earliest opportunity. This posted end December 2005: 19th December 2005, the European Commission announced in a press release that it was referring Greece and Portugal to the European Court of Justice for alleged breaches of EC Maritime Cabotage law involving island shipping services. The significance for Scottish ferries and the Executive is that the Commission is becoming more pro-active and aggressive in taking action under this legislation. Go back to top This posted 11th September 2006: Short summary of concerns based on the Ministers comments and noted in my post immediately below sent to the Minister, copy here. This posted 8th September 2006: The Minister of Transport Tavish Scott said in the Herald today (page 11) "We have an extremely robust tendering process. V ships did not win the Northern Isles ferry contract because their bid would have cost the taxpayer tens of millions of pounds more than the winning bid." I predict that the Calmac bid will turn out to be gross underestimate of the necessary subsidy once the contract is up and running, just as it was in case of the first Northern Isles first tender which collapsed and in which CalMac was a partner. It may even turn out to be more expensive in the end than the losing V Ships bid. Why? Because the penalties from underestimating the risks and necessary subsidy in the case of a Calmac bid can simply be simply passed on to the taxpayer in the end of the day, while the costs and underestimating of risks and necessary subsidy in the case of a bid from V Ships would first of all be borne by shareholders who would then wreak vengeance directly on the management responsible. In the absence of an independent regulator assessing bids, there is no more reason to place faith in Scottish Executive's treatment of their own company's bid than there was the first time around when Northern Isles was first tendered - and about which I warned in evidence to the Scottish Parliament in September 2001. This posted 4th August 2006: As reported above "Recent Developments of General Relevance", the Herald Newpaper today confirms that PSOs are needed to subsidise lifeline ferry services. The text of the article is here with possible implications for Northern Isles. This posted 7th July 2006: The new ferry contract for the Northern Isles route has just been announced in a Scottish Executive Press Release and has been awarded to Northlink Ferries, a company formed by Caledonian Macbrayne. The budgeted subsidy for the first year of operation is £31 million (subject to adjustments in the light of actual inflation and other factors....). Those interested (the taxpayer should be) should compare the subsidy now with previous years, including when P&O and then Northlink ran the service. P&Os subsidy over the last four years it ran the service (1999-2002) was about £11mill a year. This posted 23rd March 2006: One of the (many) mysteries of these tenders is where and why the trigger point of £750,000 came from (see post for beginning January below). The Executive say they will consider paying additional subsidies to the new Northern Isles operator in "certain circumstances" and will only consider paying additional subsidy if the operator's losses exceed £750,000 in any one year. This is of course probably completely coincidental, but Northlink (CalMac plus Royal Bank of Scotland) have just posted a loss of £696,000 on the route, see Herald, and of course CalMac has been recently announced as preferred bidder for the route (see post for 19th March). It is lucky that the trigger point had not been set at, say, £650,000, otherwise the Executive would have been in the embarassing position of potentially having to bail out its preferred bidder (as part of the Northlink joint venture) again before the contract even started, this being potentially doubly embarassing because CalMac is of course the Executive's own company. So heck, what does it matter, it is still the taxpayer who finishes up picking up the tab anyway, one way or another. This posted 19th March 2006: CalMac has been chosen as preferred bidder for the Northern Isles tender, see here. While this is the least-worst alternative compared to any private firm being awarded this lifeline route given the absence of proper checks and balances (the absence of which I have been pointing out to the Executive and successive Transport Committees of the Scottish Parliament for six years), the real question is why there was so little commercial operator interest in the route in the end. One part of the answer is that the Executive's weak and totally adequate approach to these issues means that profit in Scottish ferry services will not lie in running tied and restricted PSO tenders, but in cherrypicking parts of the route and ruining the business plans of the PSO tender itself (see panel on cherypicking on right). That is why many firms are standing back from this process at the moment. Once these tenders are place and the "winning" tender bidder tied down and committed, these cherrypickers will be able to select their targets and over the years the public service routes will be attacked at will, the losers will be the public service, integrated transport, users, communities, and especially the taxpayer who will be left with the bits that the cherrypickers spit out. This
posted 21st January 2006: the Shetland News
reported that the retender was being delayed by a month "to give
the Scottish Executive more time to ensure a smooth handover". It
was also reported that NorthLink have now received £78 million in
government subsidy for the ferry service they started to operate in October
2002, more than twice what was agreed in the initial contract. This posted beginning January 2006: The Shetland News reported that the Executive will pay additional subsidies to the new Northern Isles operator in "certain circumstances" and will only consider paying additional subsidy if the operator's losses exceed £750,000 in any one year. Clearly the details of what is being promised to the operator will have to be looked at, but on the face of it, what the Executive seems to be saying is; if you make a small loss it is your problem, if you make a big loss it is our problem. To anyone familiar with issues of contracting, this would appear to encourage what is called moral hazard. Why make a loss of £500,000 which you would have to bear when making a bigger loss could win you extra subsidy? The economist John Maynard Keynes once said; "if you owe the bank a thousand dollars, you're in trouble. If you owe the bank a million dollars, the bank is in trouble." That may be true, but Keynes surely never envisaged banks or governments writing contracts to help create that hazard. (Note: This added 7th February The Audit Scotland Report into the contract quotes the Executive as stating; "Should income fall or costs rise sufficiently in any one year, the operator will be required to bear the impact of not making its anticipated return from providing the service plus a further £750,000 of losses before SETG will consider paying additional subsidy". para 3.21. Such a statement must be viewed in the light of how the Executive responded to Northlink's multi-million pound overrun) This posted end December 2005: At the end of November, it was reported that the present operator Northlink (a CalMac and Royal Bank of Scotland joint venture) was under investigation by the OFT for what the OFT said were "reasonable grounds" that it had breached the Competition Act. The Auditor's report into the Northern Isles fiasco also found that about double the agreed public subsidy had been spent over three years in keeping the tender going. A BBC report into the forced retendering noted that the Executive had said they had learned the lessons advised by the auditor from the original tender, such as the need to provide the bidders with adequate information. But a Scotsman article just a few weeks earlier had suggested that two of the three companies shortlised for the new retendering process were still disasatified with the information they were getting to help frame a tender bid, so little evidence that lessons had been learned. ICG has pulled out, leaving just CalMac and V-ships in the running for the tender. The Auditors report into the original Northern Isles tender described the tender process as "adequate". That may be the view from an accountant's perspective, but regulatory economists and professional regulators would likely take a very different view if asked their opinion on this debacle. The September 2005 retender document is here and reinforces the point that the tender process is still basically severely flawed. See also the Northern Isles Appendix on my Europa Institute paper. More on the background problems, likely outcomes and a feasible solution for this and the other tenders in my Comments letter Go back to top This posted 22nd April 2008: The former Minister who was reponsible for pushing the CalMac tender now says the Commission is to blame for all this debacle. See my comments on that here. This posted 21st September 2007: The Herald has an editorial which describes the Calmac tender process as a fiasco and notes much of the grief could have been avoided if they had followed my arguments based on the Altmark case. See also the article by David Ross in the same issue This
posted 8th March 2007: The Scotman says
today: "Tavish Scott, the transport minister, said ministers
could not break the law by defying the European Commission directive,
which required them to put CalMac's routes out to competitive tender .....
We were presented with no alternative but to tender in order to ensure
that the subsidy was in line with European law. "Ministers are not
allowed to break the law," he said. "That doesn't mean I like
the laws." This posted 2nd March 2007: The Bute Ferry Users Group has podced an excellent website and analysis of the implications of the CalMac tender for Bute. I produced this Note on the implcations of the tender for Bute and the network in general partly in reponse to their work. This posted 18th February 2007: The comment in the blog for 16th February below is published as a letter in the Herald 17th February. This posted 16th February 2007: The Herald carries an article revealing that "The Scottish Executive has been sidelined by Whitehall bureaucrats in a bid to have (the CalMac) controversial and costly tendering process for lifeline ferry services scrapped", the editorial notes "Shambles? Fiasco? Neither is too strong a term" and my comment here argues that this explains why it was right to raise the question of the blog of 31st January immediately below - there was no need to tender these services. This posted 31st January 2007: Questions are raised by myself and others as to whether the tendering of the CalMac network was really necessary, see Herald article This posted 30th January 2007: "The Executive's attempt to open up the Western Isles ferry routes to tender was in tatters last night after V.Ships, the last private sector bidder, pulled out, claiming the process was flawed", see here and blogs for March and June last year below which predicted this. This posted 12th January 2007: The Commission has replied to a question from Alyn Smith MEP on the Executive's failure to apply PSOs on the CalMac services. The answer is discussed here, confirms worst fears and adds more. This
posted 14th December 2006: The Executive
has released
more details on the proposed tender. This posted 12th October 2006: The Herald has article on Commission's reply (see also 10th October below) on PSOs being necessary for subsidy for CalMac (but see also Blog 1 above for 12th October on this). This
posted 10th October 2006: The Commission
confirms that subsidy may be granted to operators to cover the costs of
meeting PSOs (Public Service Obligations) on a route, and that the imposition
of public service obligations is therefore a precondition for any subsidy
to be given - confirming the points made in previous blogs on this page.
But the Executive have already stated that "there is no need to
consider, nor do we intend to consider, issues arising in relation to
PSOs". The implications are discussed in CalMac
PSO answer. This posted 6th October 2006: The CalMac Annual Report states "the European Directive on maritime cabotage ... provides that State Aid may be paid only to fulfil a Public Service Obligation ..." See Blog 1 and What is a PSO on this page for further implications This posted 20th September 2006: See Blog 1 above (for 20th September) for news on formation of VesCo and some implications for CalMac tender. This posted 4th August 2006: As reported above "Recent Developments of General Relevance", the Herald Newpaper today confirms that PSOs are needed to subsidise lifeline ferry services. The text of the article is here with possible implications for CalMac tender. This posted 7th July 2006: The Minister Tavish Scott now has announced that he intends to run all CalMac services wiithout any Public Service Obligation (PSO) on any of the routes. Since a clear declaration of relevant PSOs is generally seen in EC law as prerequsite for subsidising lifeline ferry services, this has major implications. I have spelt out the possible problems and implications in a letter and note to the Minister, copied to members of the Local Government and Transport Committee of the Scottish Parliament. This posted 5th June 2006: As predicted, (see posting for 19th March 2006 below) the signs are now that V-Ships will pull out of the tender process for the CalMac network leaving just CalMac the sole firm left in the bidding process. Why are we not surprised? See Scotsman 3rd June and the discusssion below in th rest of this section on this tender. This posted 19th March 2006: The fact that V-Ships did not win the Northern Isles tender (see above) must increase the chances of CalMac winning the tender for its own network since the CalMac tender would have been much more attractive to V-Ships for administrative and other reasons if they had already won the Northern Isles tender as well. While CalMac winning the tender for its own network must be counted the least-worst alternative compared to any private firm being awarded this lifeline route given the absence of proper checks and balances (the absence of which, as I noted under Tender 1 above, I have been pointing out to the Executive and successive Transport Committees of the Scottish Parliament for six years), the real question is why there is already so little commercial operator interest remaining in this tender. As I noted under Tender 1 and repeat here, one part of the answer is that the Executive's weak and totally adequate approach to these issues means that profit in Scottish ferry services will not lie in running tied and restricted PSO tenders, but in cherrypicking parts of the route and ruining the business plans of the PSO tender itself (see panel in the column on the right on cherrypicking). That is why many firms are standing back from this process at the moment. Once the CalMac tender is in place and the "winning" tender bidder tied down and committed, these cherrypickers will be able to select their targets and over the years CalMac's public service routes will be attacked at will, the losers will be the public service, integrated transport, users, communities, and especially the taxpayer who will be left with the bits of the CalMac network that the cherrypickers spit out. This posted end December 2005: BBC Scotland reported that CalMac was transfering its ship crewing operations to Guernsay to save £1mill a year in national insurance contributions. According to another earlier BBC report, the contest for the CalMac tender has narrowed to three companies; CalMac, V-Ships and Western Ferries, down from seven companies expressing interest in another BBC report in November. Comment: clearly experience, capabilities and management resources relevant to the running of what is a major ocean going ferry network and lifeline service should be a prerequisite for the award of the tender, which means the contest is now effectively a two-horse race, paralleling what is happening on the Northern Isles tender. The draft Invitation to Tender for the CalMac network is here. In 2001, the Transport and Environment Committee of the Scottish Parliament considered the issue of the proposed tendering of CalMac services on Feb 28, on May 30, on June 12, on June 18 (this meeting including written submitted evidence from Professor Tony Prosser, Captain Sandy Ferguson and me) on June 26 (with a further submission from me) and on Sep 26 (which includes the report of the Committee's Inquiry into this issue). The evidence I gave to this committee in 2001 and the warnings I raised as still as relevant today as they were then. In 2005, its successor committee, Local Government and Transport revisited the same issue on 22 Feb, on 8 March, on 15 March, (includes papers by Paul Bennett, Edinburgh University; Jeanette Findlay, Glasgow Uiniversity; and my Europa Institute paper) on 12 April, on 24 May (with evidence from Paul Bennett and me), on 31 May (with evidence from Jeanette Findlay) on 21 June and 13 Sep (with evidence from the Minister Tavish Scott). Again, more on the background problems, likely outcomes and a feasible solution for this and the other tenders in my Comments letter. Go back to top This
posted 13th October 2006: Yesterday's
report confirmed, the Department of Enterprise, Trade and Investment (DETI)
in Northern Ireland yesterday issued a statement abandoning the Campbeltown-Ballycastle
initiative, this reported
in the Herald . This posted 12th October 2006: Reports coming in that Northern Ireland Office have withdrawn from the Campbeltown-Ballycastle tender. If confirmed this will be further confirmation that the Executive's policy here a complete failure, as predicted in my earlier blogs (see below). The NI commitment was capped at £300,000 subsidy, the Executive's at £700,000 so if the Irish thought the game was not worth going on with even given their limited exposure, then it speaks volumes about the Executive's flawed approach. This posted 3rd June 2006: The website of the Campbeltown Courier as of today still shows on the front page the headline from 1st April "Here We Go Again" and notes "For the umpteenth time, the message from the Scottish Executive regarding the proposed Campbeltown to Ballycastle ferry service seems to be 'not this year, maybe next'". As I have noted last year and this year (see post for January 12th below), there is a very good chance Campbeltown will have to wait a very long time. The key question is why the Executive is keeping what are almost certainly false hopes alive when they have produced no new plans to deal with the (predicted) failure to secure the service last year. This posted 19th March 2006: The Executive have announced (see here) that they are still interested in seeking a bidder for this roure even though they did not get any through the formal prcess (see below). They say "investigations will require time to pursue and it is not possible to place a precise timescale on them in advance, but every effort will be made to establish the position as soon as practicable". This is making and pursuing policy by wishing and hoping, crossed fingers, hoping something (they don't know what ...) will turn up, when they have already been told why their present policy was unlikely to create a sustainable service, and instead how a pro-active policy could work in this context. Another shambles. This posted January 21st 2006: there are reports that at least two companies have expressed interest in running a service on the route even though the tender deadline has passed, in one case it would be a fast passenger-only service. I am going to reserve comment on these proposals, partly because details so far are sketchy, but also because I do not want to say anything that could be seen as prejudial to any proposals for the route. In any case, my views are adequately enough set out elsewhere on these pages. This posted January 12th 2006: A BBC Report confirms that there were no bidders for the tender by the deadline set for today. It will be noted that I wrote to the Minister last year in my Comments letter about all four tenders, and in the case of Campbeltown-Ballycastle said; "It is not clear how you can produce a short list for the Cambeltown-Ballycastle service when it is not clear where the vessel(s) will come from .... There is little, if any, evidence that the short-listed companies have such plans or are in a position to develop them..... The bottom line here is that there is little chance that the shortlisted companies have credible plans for a service on the route, and little chance that they can develop credible plans". In the Reply from the Executive to my letter, the Executive made no reference to my comments on Campbeltown-Ballycastle. It will be noted that my view on the likely outcome of the tender had conflicted with that of the Minister who said in the BBC report of the tender failure this week that; "We reported in September that we had received an encouraging level of initial interest in the route, and that we hoped this would lead to a compliant bid being received" In my Comments letter to the Minister I suggested what could and should be done here and my Note of 12th January presents a way forward both for this route and Gourock-Dunoon. The original draft Invitation to Tender is here, the current Executive announcement intending to tender is here, and the announcement of the shortlist is here. Again, more on the background problems, likely outcomes and a feasible solution for this and the other tenders in my Comments letter. Go back to top This posted 2nd July 2010: Deloitte Touche report back online (see post for 1st July below) Government says "just moving some older material to another server and so it was off for a day or so but back on now..." Yes, of course. Could be two reporters and an MSP chasing them down on this would have helped hasten the process... This posted 1st July 2010: An error or anotther scandal? Is the Government trying to bury evidence on the Gourock-Dunoon route that has the potential to severely embarrass it? See here. This posted 18th April 2010: See here for misrepresentation of what the governing party has done in the case of ferries This posted 16th April 2010: See here for notes about The Government News Release about the four firms (Clyde Marine, Brian Souter's company Highland and Universal Securities, Cowal Ferries - i.e. CalMac, and Western Ferries) shortlisted for the Gourock-Dunoon tender. It all is consistent with the passenger-only future for Gourock-Dunoon town centre service suggested in my blogs here and here and here These both posted 10th April 2010: A further tranche of Freedom of Information requests confirms that the government's statement that there are "suitable" vehicle-carrying vessels for Gourock-Dunoon available on the second-hand market is simply not true, see the response from CMAL here. and the response from the Government here This posted 25th March 2010: Last week the government was claiming they had found "suitable vehicle-carrying vessels" for Gourock-Dunoon. This week, using Freedom of Information (FOI) legislation, I established what the Minister Stewart Stevenson meant by "suitable". The answer? Any old tonnage that can simply dock at Gourock and Dunoon. They nearly got away with this, and would have if it had not been for FOI. See here This posted 20th February 2010: As an economist I know the danger of making firm predictions, but here are four likely outcomes and one firm prediction as to what the shambles of the tender for the public service may bring This posted 15th September 2009: The Scottish Minister for Transport, Stewart Stevenson has sealed the fate of the Gourock-Dunoon ferry service, see here This posted 21st August 2009: See analysis here and implications of "Western Ferries and the replacement linkspans that weren't" This posted 18th August 2008: New press release on Gourock-Dunoon, see here plus my comments This posted 22nd July 2008: Various pointers to the imminent end of the town centre to town centre vehicle ferry service. See here for more. This posted 10th December 2007: I have received this letter by email from the Leader of Argyll and Bute Council on the documents I received under FOI on the so-called "Users Charter" meetings (se blogs below for 14th September and 13th October). Here is my response. The documents in question received under Freedom of Information are here. This posted 13th October 2007: More here on new information released on Ministerial involvement in the "Users' Charter" meetings in the previous adminstration This posted 14th September 2007: The documents on the "Users' Charter" meetings released after appeal to the Scottish Information Comissioner are here. For my short summary and later detailed analysis see here. See herald srticle for today here This posted 26th July 2007: The Scottish Information Commissioner's Decision on the Western Ferries / Scottish Executive Users' Charter meetings is published today here. See blog here below for 21st July for discussion and analysis This posted 21st July 2007: The Scottish Information Commissioner sends me his Decision on my appeal (lodged March 2006) for disclosure of withheld information on the Western Ferries / Scottish Executive Users' Charter meetings. The Commissioner finds against the Executive in the majority of instances where it withheld information from me by citing an exemption under Freedom of Information legislation. The Executive now has 45 days to comply and send me the information as directed by the Commissioner. Fuller analysis here For earlier blogs on these Users' Charter meetings, see blogs below for January 14, February 1, February 23, October 17 and October 19 (all 2006) This posted 19th July 2007: A politician who is prepared to tell the truth about Western Ferries and Gourock-Dunoon? Could this be a turning point? See Herald article This posted 6th July 2007: The Managing Director of Western Ferries claims in the Dunoon Observer today, "Western Ferries has never sought a monopoly" on Gourock-Dunoon. Here is my comment. This posted 15th March 2007: The final push on what remains of the CalMac (Cowal Ferries?) vehicle-carrying service has started. If you go today to buy adult and/or child 10-journey passenger tickets from the local agency in Dunoon at the bucket shop prices, you will find they have just been given modest rises of about 2-3%. By contrast, 10-journey tickets for cars have gone up from £39.50 to £45, a 14% rise. As with everything else that has been happening on this route recently, there was no warning, no consultation. This will be clearly be the last straw for those vehicle-drivers (now rapidly dwindling in number) who have stayed loyal to CalMac and many of whom will now switch to Western. And guess what? After the election an announcement will be made that vehicle-carrying on the Gourock-Dunoon route is no longer commercially viable or acceptable, with the commercial service provided by Western by then carrying (probably) over 90% of vehicle traffic. But why now? Would it not probably be more politically astute to leave this transparently obvious tactic until after the election in a few weeks? My best guess is that something like this has been planned for months (as we now know, so also was setting up Cowal Ferries) and that all this is being ultimately driven by the same people who were deeply involved in the private User Charter Meetings with Western Ferries, that is the Scottish Executive officials (remember the existence of these meetings was only revealed because of questions asked under FOI legislation). The officials may not have specified exactly the 14% rise, but they would certainly would not have hesitated to help push it in that direction as a further step in the eventual wholescale unregulated privatisation of lifeline vehicle-carrying services on this route, something they and their predecessors have aspired to for years. Anyone who think they would not micromanage to this extent probably does not realise that there is a civil servant present at all CalMac board meetings. The civil servants do not know who is going to be the Minister of Transport after May, but they are going to make as sure as they possibly can that the new Minister will be presented with an offer they can't refuse; that is, passenger-only Gourock-Dunoon with Western being given the vehicle-carrying monopoly. That was how ferry and air PSOs disappeared off the agenda completely when a new coalition (and new Minister of Transport) took over in May 2003. That is what is behind "Cowal Ferries Ltd" and 14% fare rises for cars. They are setting things up so that so that the new Minister will be hogtied over this as Calmac itself has been. But while to be forewarned may be to be forearmed in most contexts, it does not seem have made much difference to Cowal in the past, especially with what is at stake and the powerful influences that are driving this whole thing. This posted 13th March 2007: CalMac business and staff Gourock-Dunoon to be transferred to Cowal Ferries, see here for comment and also see here for a summary of the Brave New World that the Executive have led us into This posted 30th January 2007: Western Ferries have issued a press release stating they intend to complain to Audit Scotland on grounds of unfair competition on this route. Here is another view of Western's position in this matter This posted 22nd December 2007 Executive "unaware" of secret discounts to haulers by its own company see BBC report This posted 17th December 2007 Reports and editorial comment (Dunoon Observer) on the public meeting on the future of the Gourock-Dunoon ferries here. (posted 11th December) A public meeting was held on the future of the Gourock-Dunoon ferries December 8th. Reports on this expected in the Dunoon Observer later this week. This posted 3rd December 2006: Have added comments on options for Gourock-Dunoon here. This posted 26th November 2006: A profile of Mr Gordon Ross of Western Ferries and four letters on the Gourock-Dunoon farce in the Herald Saturday. The Herald is to be commended for its coverage of the issue this week (though its habit of later archiving material and asking readers to pay for access is less helpful). This posted 24th November 2006: Two letters on the 21st from George Lyon MSP and Mr Gordon Ross MD of Western Ferries in the Herald replying to the feature article (see post 18th November), I have a letter on the 22nd commenting on Mr Lyon's letter and a letter on the 24th commenting on Mr Ross's arguments. There is also a further letter on the 24th commenting on Mr Lyon's earlier letter This posted 18th November 2006: Excellent feature article on the Gourock-Dunoon shambles in the Herald newspaper today. This posted 14th November 2006: The Gourock-Dunoon tender has closed with no bidders, "farce" and "shambles" are a couple of the terms used by the media. Add to that "predicted farce" and "predicted shambles", because I predicted there would be no bidders when the shortlist was announced at the beginning of August. See Herald article and Herald editorial, also the Scotsman and BBC Scotland. In addition, local association Pier Pressure Group have announced that they have complained to the Office of Fair Trading alleging unfair competition on the route, these claims based around the User Charter meetings referred to below (e.g see various entries below between February and October) This
posted 28th October 2006: CalMac Press
Release states the present service will continue with weight restriction,
Argyll and Bute Council Press
Release states the service will continue without disruption and that
"a further meeting between the Minister and council representatives
to discuss how a ferry service can continue from the Pier will take place
after Christmas". Comment these are sticking plaster measures
and none of this attends to the stuctural pronbblesm here, essentially
how the Executive is helping set up a Western Ferries monopoly. The Dunoon
Observer also publishes a letter from me, 27th February in which I said; This posted 22nd October 2006: The Dunoon Observer 20th October carries a series of entries documenting what is happening here, including the editorial which calls me "something of a modern Cassandra", which I think is a compliment though the picture of Cassanadra in Wikipedia does not really flatter me. This
posted 19th October 2006: The Herald carries
an article about
the Gourock-Dunoon ferry services today. The Executive makes three statements
in the article, they can be compared with what has been revealed under
FOI documents on "Scottish
Executive Meetings with Western Ferries about Users' Charter"
so far Statement (1) The Executive says "The discussions
with Western Ferries in 2004 on a possible Users' Charter were not predicated
on Western being the sole provider of ferry services". Statement (3) "Any suggestion the executive has been colluding with Western Ferries to make it the sole provider is wrong." Fact: the only mention or suggestion here of possible collusion has been by the Executive. However since they see that inference as possibly being a reasonable interpretation of the facts that have been made public to date, then the only ways that this possible intepretation can be refuted or otherwise clarified is by full disclosure by the Executive of what was discussed and decided (even if only on a contingent basis) at these meetings, or an investigation by the appropriate antitrust authorities at UK or European level. The article also says "Western Ferries' managing director, said
he was preparing a bid". However, Western would only have a commercial
interest in preparing a bid if there was a real possibility of an operator
coming on to challenge them on the route, and there is no danger of that
the way that the Executive has handled matters. We shall find out when
bids close end of October. I do not expect any bids, as I predicted when
the shortlist was announced, This
posted 17th October 2006: We now know through
Freedom of Information that there were at least six meetings between the
Scottish Executive and Western Ferries to discuss Western's proposals
for a "Users Charter" (an Executive/Western agreement setting
Western prices and services), and that at least two meetings involved
the past and present Transport Ministers, Nicol Stephen and Tavish Scott.
This posted 13th October 2006: The Herald carries report of yesterday's announcement. This posted 12th October 2006: CalMac has today announced that the Gourock to Dunoon service could be operated as a passenger-only service, following Argyll and Bute Council’s decision to place a weight restriction on Dunoon pier from November 1st. The announcement says it could be up to four months but this would effectively be the end of vehicle-carrying, its present vehicle-users would simply switch to Western Ferries. The service is already so restricted at the moment in order to favour Western, there would be just about nothing left to pick up if and when vehicle-carrying resumed.The service is being run into the ground. In any case the working life of the pier is set to expire next year and the Executive will not give the go ahead to build new vessels that will be suited for the new linkspan at Dunoon breakwater. The council's announcement stated that their weight restriction of 13 tonnes will be put in place from 1 November means that over 95% of the traffic which uses the pier daily will not be affected by the works. So why go passenger-only on that basis? The situation that Calmac Gourock-Dunoon will probably go
passenger-only is not unexpected. There were six meetings in 2004 and
2005 between the Executive and Western Ferries to discuss Western's "Users
Charter". These meetings took place at times when the Executive's
public position was that they were actively encouraging competition on
the route. The existence of these meetings and their (heavily censored)
content was only discovered through Freedom of Information. This posted 20th September 2006: See Blog 1 above (for 20th September) for news on formation of VesCo and implications for Gourock-Dunoon as well as main CalMac tender. This
posted 8th September 2006: V Ships have today
issued a statement announcing they are pulling out of the Gourock-Dunoon
tender stating "we are unable to convince our shareholders with
sufficient confidence that we could compete on a level playing field within
acceptable commercial parameters". The BBC coverage is here.
This confirms my earlier prediction
that they would not bid for it, as well as further evidence that this
whole process is designed to not produce any bidder and that it will instead
help set up Western Ferries as monopoly operator of vehicle carrying services
here. Western yesterday announced a £4mill investment in their parallel
facilities on the route. A BBC
item says "Opposition parties have raised doubts about the
tendering process. They said the Western Ferries move was an indication
that confidence in the process was collapsing". Yes, except reading
my earlier posts below will confirm there was no reason to have any confidence
in this process to begin with. The same BBC
item also said "Scottish National Party spokesman Jim Mather
said he has raised concerns over the competence and integrity of the tendering
process Conservative spokesman David Davidson said several potential bidders
had complained to him about its handling". Put that together
with V Ships statement today and my posts below and the argument for an
independent investigation of this sorry mess is overwhelming. This posted 4th August 2006: As reported above "Recent Developments of General Relevance", the Herald Newpaper today confirms that PSOs are needed to subsidise lifeline ferry services. The text of the article is here with possible implications for the Calmac Network and Gourock-Dunoon. This posted 4th August 2006: The Dunoon Observer reports today (scroll down the papers website for "news" for 4th August if necessary) that three companies are in line for the Gourock-Dunoon tender. They also print a letter from me that descibes this exercise as "drawn out, expensive, futile and wasteful" This posted 14th July 2006: The Minister and local constituency MSP continues to refer in letter to the Dunoon Observer to "the Kay proposals" even though his attempt to shed Executive responsibility for this debacle has been comprehensively refuted (see postings for this tender 19th and 24th March below). The Editorial in the same edition sytematically refutes this and other allegations. How many times do we have to give the lie to these claims? This posted 7th July 2006: As noted under Tender 2, the Minister Tavish Scott now has announced that he intends to run all CalMac services wiithout any Public Service Obligation (PSO) on any of the routes, including Gourock-Dunoon. I have spelt out the possible problems and implications in a letter and note to the Minister. This posted 3rd June 2006: The Dunoon Observer for 2nd June reports an inspection of Dunoon Pier has revealed that, unless remedial action is taken before the onset of winter, the vehicular access on and off the pier will no longer be able to cope with heavy vehicles. The leader of the council has written to write a letter to the Scottish Executive asking for CalMac to allocate a vessel to serve the new linkspan. CalMac have responded basically, "no chance". There is also still no indication on when the 'preferred bidder' would be chosen, despite previous assurances from the Minister that this would be announced 'in the Spring'. A spokesman for the Executive said: "The Executive has recently finished evaluating the information that was submitted to us by the three organisations that remain in the bidding process for the Gourock-Dunoon route. "We are now considering which organisations should be taken to the next stage of the process and invited to submit a technical bid. "Once this process is complete, we hope to be in a position to invite technical bids shortly." The Dunoon Observer notes that the delay in the process also makes it likely that the timescale for the opening of the new service will slip even further. Comment: there is little chance now of any firm other than Western being seriously interested in the route The Executive would also impose contractual restrictions and obligations on any unsubsidised operator on what is presently the Calmac service, whether or not this is CalMac - but no restrictions on Western on this route. Just one of the many problems that would dissuade an operator is that they would be tied down to a timetable and other obligations, but they would see little to stop Western from transferring some of its services to run between McInroys Point and Dunoon Breakwater, albeit temporarily. Just a few peak period runs here by Western could cream off much of the valuable peak period traffic from Dunoon and ruin any second operators business plans. No operator fully appraised of these risks would take the chance. The Executive have restricted this market in such a way that a Western
monopoly is virtually guaranteed This posted 24th March 2006: The letter setting the record straight from my two co-authors and me (see post for 19th March below) published in full in the Dunoon Observer today. At least this is now a matter of public record, no-one deserves the credit for this debacle except those really responsible - the Executive. This posted 22nd March 2006: I was asked yesterday by a visitor to this website what the Scottish Executive schedule is for the tender, it is currently here and has Spring 2006 - Issue Invitation to Tender to short listed organisations; Autumn 2006 - Selection and appointment of operator; Spring 2007 - Contract start and operation. There is no reason to expect that this is doing anything other than encouraging false optimism given that the Executive's actions here over the past few months have, for whatever reason, effectively discouraged and driven away much of the serious second operator interest (see the post for this tender for 19th March below). Expect predictable expressions of disappointment, surprise and regret from the Executive on these counts when the proposal fails, as happened with Campbeltown- Ballycastle (see post for 19th March for Tender 3 above) This posted 19th March 2006: In a bizarre twist, political literature is circulating in Argyll and Bute crediting me with the Executive's proposals for this route, which is ironic, risible and plain wrong and highly misleading given the criticism I have made of the Executive's proposals for Gourock-Dunoon on this website (see below) and in correspondence to the Executive over the past several months. The offending literature is copied here and the response with my two co-authors is here. This posted 23rd February 2006: The Scottish Executive finally release (after delays that breach the 20 working day reply rule) information requested by Jim Mather MSP on the "Users' Charter" meetings between Western Ferries and the Executive in 2004 and 2005 - essentially, discussions about Western getting a monopoly on the route at a time when the Executive was supposed to be promoting competition on the route under EC rules. The documents supplied by the Executive are reproduced here, while my comments on them are reproduced here. While the documents are in some cases heavily edited and others suppressed, there is enough in them to suggest that the statement of 13th January 2006 (that these discussions were deemed no longer relevant after the decision to invite other commercial interest in the route) was misleading. This posted 8th February 2006: The Herald carries a story today about a shareholder in Western Ferries selling his shares for £3.3mill. See my follow up note This posted 2nd February 2006: Some quotes from Labour Cabinet Ministers past and present on Gourock-Dunoon and Western Ferries to mark the appointment today of Lord George Robertson to the Board of Western Ferries This posted 2nd February 2006: the BBC reveals that Western Ferries is set to announce the appointment of former Nato Secretary General Lord Robertson to its board and notes that as an MP, George Robertson led a Scottish Labour Party hostile to the privatisation of ferry services and highly supportive of CalMac. The attention of Lord Robertson might be drawn to what his new company was doing while he was doggedly defending CalMac from privatisation, and what it has been doing since (see the various postings for 1st and 2nd February and 31st January below) This posted 2nd February 2006: a Google keyword search has revealed the name of the public spirited person whose persistence under FOI legislation finally confirmed the scandal of public subsidies helping to protect Western's private profits (see next paragraph). All is revealed here. This posted 1st February 2006: Papers released under FOI legislation last week finally confirm what many of us have suspected for years - that the government has been deliberately refusing to allow CalMac to run more frequent sailings even though they have known for years that CalMac had shown that this would be commercially justified and reduce need for public subsidy. The reason? The government's "arrangement" to protect Western Ferries. See my analysis here of how the Scottish Office restricted competition on this route for years to protect Western Ferries profits at the taxpayer's expense This posted January 31st 2006: those interested in the current UK Minister of State for Transport and Secretary of State for Scotland's views on Gourock-Dunoon might find the Minister's views expressed while an opposition MP in online Hansard of interest. (see Column 1014-1016) The fact that Competition Policy is a reserved matter should also be of interest in this respect given that Mr Darling is both UK Minister for Transport and Secretary of State for Scotland and presumably has continuing interest in these matters. This posted January 31st 2006: the Herald newspaper published allegations today by Western Ferries about CalMac's subsidy on the route. Here is my response Why Western Makes a Profit and CalMac a Loss on the Gourock-Dunoon Route This posted January 31st 2006: there have been a number of new revelations regarding what is likely to happen on this route, this has led to my note on the Gourock-Dunoon Ferry Services 2006-08 This posted January 14th 2006: follow up by Jim Mather MSP obtains further answers by the Executive on the discussions between Western Ferries and the Executive on their "Users' Charter" (see also note posted end December below) This posted January 12th 2006: As noted for Tender 3, in my Comments letter to the Minister I suggested what could and should be done here now and my Note of 12th January presents a way forward both for this route and Campbeltown-Ballycastle. This posted end December 2005: Jim Mather MSP asked in a written question to the Scottish Executive "whether it has discussed the prospect of creating a Users Charter with any current or potential ferry operators and, if so, which operators were involved and when the discussions took place". The Minister Tavish Scott replied; "Proposals for a Users’ Charter relating to the services provided by Western Ferries between Inverclyde and Cowal were submitted to the Scottish Executive and Argyll and Bute Council by Western Ferries in 2004 and were the subject of subsequent discussions". The "Users Charter" was what Western promised if they became the monopoly operator on the route. This does raise the question of why private discussions were being held with one operator at this highly sensitive and crucial juncture in the development of the service, especially when the topic of the discussion was associated with the creation of an unregulated monopoly of ferry services on such a strategically important route. Gourock-Dunoon documents The documents on the "Users' Charter" meeting released after appeal to the Scottish Information Comissioner are here. For my short summary and later detailed analysis see here. The Scottish Information Commissioner's Decision on this issue is here. For those who would like further background on the saga of the Gourock-Dunoon Clyde crossing, see here for a compilation of the Gourock-Dunoon saga August 2004-07 based on extracts taken from the online version of the Dunoon Observer. The original Executive announcement in December 2004 of the plans to invite non-subsidised operators along the lines suggested in my FSB/DGFG report with Captain Sandy Ferguson and Ronnie Smith CA (see below) is here and the renewed announcement is here. See also the Gourock-Dunoon Appendix on my Europa Institute paper. Again, more on the background problems, likely outcomes and a feasible solution for this and the other tenders in my Comments letter. Also, The Economics of the Gourock-Dunoon Ferries is an analysis of the economics of the route which I wrote with Captain Sandy Ferguson and Mr Ronnie Smith CA, while Gourock-Dunoon, 23 Questions, 23 Answers and a Conclusion is a note on the implications of the Executive's short-lived programme of market testing for the route before the "Users' Charter" meetings were pulblciy known about. Go back to top For the record ... The views here are my own and do not necessarily represent the opinions of any other parties. For the record, I have been offered several (unsolicited) paid consultancies on Scottish ferry services in recent months, have turned each down because I genuinely believe the Executive's proposals here threaten the public interest and I wish to remain a free agent to express my views on these matters (there are plenty others who are happy to accept or seek such consultancies, which is why you should always second guess unsolicited public pronouncements in the media by specialists in these matters). I have had confidential discussions with ferry companies where I felt it was in the public interest to do so, including accepting confidentiality agreements where this was requested (unusual, given I was not receiving fees). I will not assist cherrypicking. To contact me, see column on the right Go back to top |
Click on names or scroll down for ... What is a PSO? / Important Dates / Links / Relevant Documents / Other Material / Cherrypicking / Scottish Air PSOs / Contact me
In summary, two simple points: (1) PSOs are necessary if
you want to subsidise EC lifeline ferry services but (2) the Executive
says there is "no need to consider, nor do we intend to consider,
issues arising in relation to PSOs". The implications of these two simple points will be profound, not just for the Executive, but also for all the users and communities dependent on these lifeline ferry services. See also The Logic of PSOs added December 11th 2006 and the Curious Disappearance of PSOs added 9th April 2008 Go back to top Pre-1992 The EC debates formulation of 1992 Maritime Cabotage Regulation. 1992 The EC's Maritime Cabotage Regulation comes into force, subsidy for EC ferries only if PSOs (Public Service Obligations) are imposed 1999 Correspondence from the Commission to the Executive indicating that subsidies to Scottish Lifeline ferry services may be in breach of 1992 Maritime Cabotage Regulation. 2000 The Executive states that "most" of Scottish Lifeline ferry services may be eligible for PSOs and so eligible for subsidies 2001 The European Court Trasmed ferries case indicates how PSOs may help justify subsidy and exclusivity on public service routes in the EC. 2001 A further European Court case clarifies the roles and relationships involving PSOs and PSCs (Public Service Contracts) in EC ferry services 2002 The first Draft Invitation to Tender for CalMac services is published and notes Commission guidelines say that subsidisation here can in principle be accepted for PSOs. 2003 (20th March) it
is proposed to tender the Gourock-Dunoon CalMac service separately, SE
Press release says "passenger service and passenger fares will
be prescribed through the PSO". (This is the last mention by
the Executive I can find of any intention to use PSOs in tendering any
CalMac services) 2003 The EC Communication is published confirming the role of PSOs in justifying subsidy and indicating how the CalMac peninsular routes (Tarbet-Portavadie and Gourock-Dunoon) may now be recognised for PSO status and so be subsidised. 2004 New EC Maritime Cabotage Guidelines State aid published 2004 The Norwegian Hurtigruten case shows how PSOs should be calculated and used to justify subsidy for ferry services under EC's 1992 Maritime Cabotage law (EC laws here also apply to Norway through EEA and EFTA) 2004 The second Draft Invitation to Tender for CalMac services is published, there is now no mention of PSO other than to explain what the acronym stands for 2005 on the question of exclusivity, the Executive informs Local Government and Transport Committee of Scottish Parliament that they have "no powers at present to restrict any operator that wishes to operate any service (on the CalMac routes)" 2005 The Initial Information Pack issued to interested parties for the CalMac tender mentions need to comply with the ECs 1992 Regulation, its 2003 Communication and its 2004 State Aid Guidelines, but makes no mention of PSOs in this or any other context 2006 (June) The Minister states regarding the tendering of CalMac services: "Public Service Obligations (PSOs) would not provide that certainty and security of service nor deliver on the Executive's key policy objectives. Consequently there is no need to consider, nor do we intend to consider, issues arising in relation to PSOs". 2006 (August) The EC's Transport Spokesman reported in the Herald and the Press and Journal says: "Companies have to be able to compete and know in advance what the subsidy is exactly paid for. The purpose of the subsidy has to be specified in the PSO. So yes, a PSO is needed before one can pay out public service subsidies for ferry services". 2006 (October 6th).... And CalMac itself in its Annual Report published today agrees with the Commission statement above "the European Directive on maritime cabotage ... provides that State Aid may be paid only to fulfil a Public Service Obligation ..." 2006 (October 10th).
The Commission answers a question on this issue by Alyn Smith MEP; "compensation
may be granted to operators to cover the costs involved in meeting public
service obligations. The imposition of public service obligations is therefore
a precondition for any compensation being given". Go back to top Direct Ferries UK gives a good summary of recent ferry news and links to the main ferry operators Clydesite Interesting, informed and lively website on shipping and ferry issues on the Clyde and elsewhere. Caledonian MacBrayne The state-owned ferry company that operates services to islands and peninsula on the West Coast of Scotland V.Ships Major international supplier of shipping services now believed to be the only serious rival to CalMac for the CalMac tender.. Western Ferries Runs a vehicle carrying short-crossing ferry service across the Clyde, has made clear its aspirations to be monopoly supplier on this major transport link Scottish Executive Transport Division Responsible for all four tenders Local Government and Transport Committee of the Scottish Parliament. Along with its predecessor committee, carried out two Inquiries into the proposed tendering of CalMac routes in 2001 and 2005, it is very much to be hoped that they continue their scrutiny into the proposed tenders and monitor Executive policies and practice in these areas. Dalriada Business Action Group Well organised and effective business lobby group for reinstatement of Campbeltown- Ballycastle ferry service Bute Users Ferry Group. a model for how a users group should be organised and work. I wish the Executive was half as professional. The 1992 Maritime Cabotage Regulation, which along with State aid rules sets out the basic EC rules that these lifeline ferry services must comply with The 2000 Trasmed Case which showed how PSOs here should be specified, and appropriate subsidy for these PSOs calculated, with or without tendering. The 2003 Altmark case which helped specify the conditions under which PSOs could formulated and related to the case for subsidy of public services under EC State aid rules The 2001 Spanish Ferries European Court case which help resolve the relationship between PSOs and PSCs in maritime cabotage The 2003 Communication from the Commission, which, amongst other things, recognised that certain peninsular or estuary services like Tarbert-Portavadie and Gourock-Dunoon could be treated as island services for the purposes of the 1992 Regulation The 2004 Community Guidelines on State aid to Maritime Transport which replaced the earlier 1997 guidelines in the light of recent developments The Commission Decision 2005 which amongst other things identifies thresholds for ferry routes which may be regarded as compatible with the common market and exempt from notification to the EC The CalMac Draft Invitation to Tender (2004) sets out the Executive's proposals for this tender (it is a big file) The EFTA Suveillance Authority Decision of 2004 (Hurtigruten case) is an unexpected but crucial piece of evidence of how EC Maritime Cabotage, State aid law, PSOs and the Altmark case can all be of relevance in a context geographically similar to Scotland. See also the linked note on the Logic of PSOs here The Northern Isles Draft Invitation to Tender (2004) sets out the Executive's proposals for this retender Scottish Transport Statistics 2005 edition contains information on Scottish ferry services (including CalMac and Northern Isles routes) Non-Commercial Service Obligations and Liberalization is very useful report published by the OECD in 2004 looking at arguments for exclusivity arrangements to prevent cherry picking under PSOs for public services (though may have too much technical economics for the lay person) Go back to top Submission to Transport Committee of the Scottish Parliament is my comment on Scottish ferry policy prior to my giving invited evidence to the Committee at its meeting 6th May 2008 Answers from the Commission and the European Court contains excerpts of material of relevance to the issues discussed here. Scottish Ferries: Problems and Solutions is a PowerPoint summary of the issues, revised August 2007 Comments on Caledonian MacBrayne's Fare Review Study is a separate paper I wrote on a review of CalMac's fare structure Fast Ferries is my attempt to counteract what would be the most wasteful use of private and public money on the CalMac network PSO Crib Sheet is my effort to summarise the issues surrounding the Executive's decisons not to use PSOs for lifeline ferry and air services. PSO on Gourock-Dunoon outliens some options for dealing with this public service route If you want to know how to close down a ferry service (amongst other things) see my note on Spare Capacity and Public Policy And in The Invitation to Tender for the CalMac Network I look at how cherpicking will lead to the dismantilng of the CalMac network. Freedom of information documents - the Western Ferries / Scottish Executive User Charter meetings: private and unpublicised meetings between Western and the then Scottish Executive to discuss proposals for Western becoming sole operator on the Gourock-Dunoon route - at a time when the Executive had stated they were putting the CalMac service there out to competitive tender. I obtained these documents under an FOI request Go back to top The next two paragraphs posted 31st January 2006: in a Decision, on request for informatiion under FOI legislation, the Scottish Information Commissioner states in para 55. "I agree that cherry-picking of its routes is a threat for Caledonian MacBrayne, and that where and when competition is introduced on a route, its effect on Caledonian MacBrayne’s commercial interests will be significant. A knock on effect of this may be the need for additional subsidy to be provided if the existing level of service provision is to be maintained". The Commissioner is right, but it is the responsibility of the Executive to do something about this, not the Commissioner. Cherrypicking is one of the real threats to the viability of subsidised public services in the Scottish ferry network. Here are some notes about it What is cherrypicking? In the case of Scottish ferry services, it is the targeting of the high value parts of routes by potential entrants What characteristics do these parts of routes have? Depends on routes but can be high revenue, or low cost, or both Such as? Vehicles, freight, summer season, short crossing. The higher the volume of traffic on a route, the more likely it is to attract cherrypicking interest. What don't cherrypickers like? Foot passenger traffic. This can be low revenue, high cost to provide for, and often involves expensive longer crossing to connect with other forms of public transport. What would be the effect of cherrypicking on Scottish ferry services? Cherrypicked parts of routes generate private profit, leaving the publicly subsidised service having to pick up the leftover essential services on the route at higher cost and subsidy (e.g foot passenger traffic). Who complains about subsidising public ferry services such as CalMac? Mostly cherrypickers. Who seeks information on Scottish ferry services under the new Freedom of Information legislation? Mostly cherrypickers. Is the subsidy to CalMac unfair competition? No more unfair than subsidising rail services. And where cherrypicking suceeds, it tends to increase the need for subsidy to the public service What is the view of governments on cherrypicking ferry services? Brussels, Westminster and the Executive all say it is undesirable and an inefficient form of market entry. Can you do anything to stop cherry picking? Yes (1) through an exclusivity provision, see here and also clause 5.5.1 here (2) through a "light" PSO, see also clause 5.5.1 here (3) through setting fares at a sufficiently low level in the public interest such that there is nothing left to cherry pick for private profit What has the Executive done to prevent cherrypicking? No obvious steps, despite warnings and actual attempts (and many threats) to cherrypick.. Is it still a threat to the Scottish ferry services? Yes. Here is a Note on how it will all end Go back to top The extremely significant (and potentially catastrophic) decision of the Executive not to pursue PSOs for lifeline ferry services has parallels in its decision to not go for PSOs for subsidy for Scottish domestic air services. They said they can do so in that context, but only by going for a highly restricted form of subsidy to benefit local residents only. Authorities like HITRANS had had been working hard to get PSO specification, and as recently as June 2005 the Executive were still supposedly going for PSOs The EC gave permission for limited subsidy for scottish air travel in May this year on the basis of a limited scheme for social aid. The decison not to go for PSOs was said to reflect pressure from Edinburgh civil servants and commercial interests - echoing what seems to have happened with the ferries Also see discussion of Scotland and air PSOs in context of how just about every other country in Europe in EC does it. Here is how it should be done and here is a short article of some of the benefits. See here also a useful presentation on PSOs for Scottish air services and the "compelling case" for such PSOs from Highland Council. See the paper from Cranfield about how Scotland compares with other EC countries in these regards. And finally, here is a Note (December 4th 2006) showing how and why the Executive got the air PSO issue so very wrong, on legal, economic, and social grounds. Go back to top Comments and communications from others interested in these issues welcomed. However, putting my e-mail address directly on this website is an invitation to spammers and their robots "harvesting" addresses from websites. I have also found that webmail addresses from a web host can be very unreliable. So I am "munging" my personal e-mail address (see munging link for more on this). To contact me just put neilkay, then @, then aol.com OR my other contact detaiils are here Think of it not as an inconvenience, but one more victory for the good guys over the bad guys. You can test e-mail me as subject "testing" or "brocher" to AOL in the first instance just to make sure you have it right so you don't waste time unnecessarily, and I'll confirm. Go back to top |
