The truth about EC law and
Gourock-Dunoon
"Neil Kay and Cameron Smith's
dogmatic pronouncements
on what is possible under European law have never been matched
by actual advice or information from Brussels" (Jim Mather
Argyll and Bute Constituency MSP in Dunoon Observer 4th February
2011)
"Professor Kay is not an expert in European law, he is
an economist" (Mike Russell SNP candidate for Argyll
and Bute Scottish Parliament elections on Brian Taylor's Big Debate,
BBC Radio, 1st April 2011)
"It is fact that resources cannot legally be provided
to provide new boats on a route on which there is commercial competition.
Should any government try to do so it would be subject to legal
action from other operators and very expensive infraction proceedings
from the European Union. These are also facts. None of them were
clear in 2007 but they are now -alas - incontrovertible"
(Jim Mather Argyll and Bute Constituency MSP in Dunoon Observer
4th February 2011)
"I do not believe the 1992 Regulation or any other aspect
of EU law prohibits or prevents the use of any vessels (whether
old or new) carrying vehicles on any route in which there is a
PSO and compensation for a pedestrian service (such as Gourock-Dunoon),
and where there is an unsubsidised competing vehicle service,
as long as appropriate accounting procedures are adopted to both
prevent and demonstrate that there has been no leakage of compensation
from the public service obligation to any unsubsidised and commercial
vehicle-carrying aspect". (Neil Kay letter of query to
European Commission 4th March 2011)
"there is no prohibition to use (old or new) vessels provided
by the State on a route where a Public Service Obligation (PSO)
is imposed on passenger transport, whereas vehicle transport is
also provided on commercial terms by the same service provider
separate accounting and appropriate cost allocation between the
passenger and vehicle transport should be ensured". (Answer
from the European Commission Competition Policy Directorate to
Neil Kay's letter of query 11th April 2011)
Comments from Neil Kay
For some years I have been involved in policy issues relating to
ferry issues in general and sometimes Gourock-Dunoon in particular
under EC law, often in the form of invited evidence to the Scottish
Parliament. My advice has frequently differed from the Government's
own advisers and I have documented some of this in a petition currently
before Parliament, details of this can be found here:
For the purposes of the present discussion, the petition records
that in any case of differences between me and successive governments'
own very expensive salaried advisers, I was invariably right and
they were wrong
I say that not to promote my own competence in these areas but
to point out the disgrace that even when the official advice to
the government has been (frequently) proven not competent (as in
the case of the crucial importance of Altmark), nothing changes,
no action is taken, no-one is held accountable, no corrections or
apologies are made, things carry on just as before.
But where matters have really reached their nadir is in the case
of Gourock-Dunoon where it is difficult to separate out the actions,
inactions and intentions of officials from that of politicians.
As I noted in http://www.brocher.com/Ferries/petition.htm the Government
claimed that they were in active discussions with the European Commission
over the tender, then they said the European Commission was delaying
the tender, then they even claimed the problem was the European
Commission would not let the Government delay the tender any longer.
The Government also claimed that there were suitable second-hand
vehicle-carrying ferries available for the route and also that a
community-based enterprise could make a difference to the outcome
of the tender process despite the fact it was underway and the shortlist
had been decided about a year ago.
None of this was true, but if it had not been for Freedom of Information
the Government would have been able to conceal much of the truth
from the public.
The point under discussion here is the Government also claimed
that EC law prevented them building the two new vessels needed for
Gourock-Dunoon, yet whenever they were challenged they were unable
to say exactly which part of which law prevented this. But I and
others have produced documented statements from the European Commission
in the past which made it quite clear that it would have been possible
to build the two new vessels needed for Gourock-Dunoon and be compliant
with EU law, as long as care was taken to prevent leakage of subsidy
from the subsidized part to the non-subsidised vehicular and freight
traffic.
And yet we still get the statements like the three at the top of
this page.
So after I saw the letter from Jim Mather in the Dunoon Observer,
I sent an e-mail to the part of the European Commission currently
dealing with Gourock-Dunoon with a detailed query together with
a JPG of the whole of Jim Mather's article in the Dunoon Observer
4th February (for the information of the Commission).
The reply from the Commission is quite clear - there was nothing
to stop the government building two new vehicle-passenger boats
for Dunoon-Gourock as long as accounting measures were put in place
to make sure there was no leakage of public subsidy (what the EC
calls compensation) to the unsubsidised freight and vehicular traffic.
The current tender documents (and the Commission) say that any operator
is free to bring its own boats, but as we have seen and confirmed
for years, there is not even one suitable, modern, 12-knot, 40-car
bow-and-stern loading ferry on the second-hand market, let alone
the two that would be needed to operate the route and run a frequent
service. You have to build them specially - as is done for every
other CalMac route. In fact, some of the same measures that are
in place in the present tender are designed explicitly for the purpose
of preventing cross-subsidy leaking to vehicular traffic, except
they will not be needed because there will be no suitable vehicle-carrying
vessels available. There are none on the second-hand market and
no new ones, because the government has not built them, despite
its 2007 election promise.
And the truth as to what happened in 2007? As was recently made
public by the MD of Western Ferries, the government offered that
company what would have been effectively a monopoly of vehicle-carrying
on Gourock-Dunoon soon after the 2007 election, the election where
they had won on a promise to build the two new vehicle-passenger
ferries for the route. See here
Why they made that offer to Western Ferries should be the matter
for serious inquiry. As soon as the government made that offer to
Western Ferries in 2007 it would have been clear to that company
(and anyone else who knew about that secret offer) that the government
had no intention of building new vehicle-passenger ferries for Gourock-Dunoon.
But a Western monopoly of vehicular traffic would still have left
the need for a passenger-only service between the town centres and
the government at this point may well have envisaged a "symbiotic"
outcome of the type I set out in the blog "truth"
Brian Souter withdrew his interest in the Gourock-Dunoon tender
a few days after that blog, the reason given by his company was
that there were more promising opportunities elsewhere, but it would
also be surprising if he had not lost patience with the shambles
that was the government's handling of Gourock-Dunoon
What has certainly been happening over the last four years has
been an attempt to conceal the truth from the public and pathetic
efforts to blame just about everybody for this debacle except for
those actually directly responsible - the government.
What this also means is that this government has almost certainly
condemned users, communities and the taxpayer to a private unregulated
monopoly of vehicle-carrying on the Western route and (at best)
a very expensive high-subsidy inefficient foot passenger only service
on the CalMac route.
Given that the evidence is that a frequent vehicular service with
two new boats on the CalMac route would effectively have eliminated
subsidy and helped develop competition in the vehicular market,
the economic and social costs of this to users, communities and
the taxpayer will be massive and likely incurred on a continuing
and almost certainly permanent basis.
That is this government's legacy of their four years here.
For information I enclose my letter of query to the Commission
below and then their reply. Where it says "other specific conditions
apply to the Gourock-Dunoon route", that essentially refers
to the earlier Commission decision that the route should be tendered
by June this year.
E-mail to Mr Mihail Milev, State aid Transport Brussels from
Neil Kay 4th March 2011
cc. Mr Neil Mitchison EC Office Edinburgh
Dear Mr Milev
Gourock-Dunoon ferry service and State aid
I am writing in relation to matters connected with the Gourock-Dunoon
ferry service which as you know has been a subject of interest to
the European Commission. I will not recite the background to this
which I am sure you will be familiar with, but I would be happy
to provide further information on request.
I would be grateful for clarification on issues raised by the local
constituency MSP Mr Jim Mather in the Dunoon Observer (Friday 4th
February) in which he states
"It is a fact that it would be impossible to cross-subsidise
a vehicle service and it is fact that resources cannot legally be
provided to provide new boats on a route on which there is commercial
competition. Should any government try to do so it would be subject
to legal action from other operators and very expensive infraction
proceedings from the European Union. These are also facts. None
of them were clear in 2007 but they are now -alas - incontrovertible"
My understanding is that contingent on the Maritime Cabotage Regulation
(1992) is that it would indeed raise State aid issues if a vehicle
service was cross-subsidised from compensation arising from a PSO
for a pedestrian service where there is commercial competition from
an unsubsidised operator of vehicle services, and in that specific
respect and context any statement that it is "impossible to
subsidise a vessel service" would be correct. However, I would
just note that I do not know of any serious argument that such cross-subsidy
should be made or would be justified in this context.
I believe instead that the requirements of the 1992 Regulation
in this context were made clear in a reply from the Commission to
Alyn Smith MEP September 2007 which stated:
.
"for the purpose of applying Council Regulation 3577/92, the
crossings between Gourock and Dunoon town centres and between McInroy's
Point and Hunter's Quay can be considered as two separate routes
and thus treated separately. In particular, the local authorities
can impose public service obligations for the carriage of pedestrians
on only one of these routes. Compensation may be provided for the
public service obligations, subject to compliance with Community
rules, in particular to the principle of non-discrimination laid
down by Regulation 3577/92. Operators may use their vessels for
the "pedestrian service" as well as for the "vehicle
service", however any undue distortion of competition, particularly
through cross subsidies between the public service activity and
other activities should be avoided. As such, any subsidy for the
public service activity cannot exceed what is necessary to cover
all or part of the costs incurred in the discharge of the public
service obligation, taking into account the relevant receipts and
a reasonable profit for discharging those obligations".
In short, I do not believe the 1992 Regulation or any other aspect
of EU law prohibits or prevents the use of any vessels (whether
old or new) carrying vehicles on any route in which there is a PSO
and compensation for a pedestrian service (such as Gourock-Dunoon),
and where there is an unsubsidised competing vehicle service, as
long as appropriate accounting procedures are adopted to both prevent
and demonstrate that there has been no leakage of compensation from
the public service obligation to any unsubsidised and commercial
vehicle-carrying aspect.
In view of the possible confusion which the constituency MSPs comments
may cause and associated public interest issues, I would be grateful
if you could confirm whether or not my reading of EC law as it pertains
here (including the 1992 Regulation) is consistent with the Commission's
interpretation,
I am copying this to Mr Neil Michison in the EC's Office in Edinburgh
for information and also for information I enclose a JPEG of Mr
Mather's letter.
Yours Sincerely
Professor Neil Kay
E-mail to Neil Kay from Mr Mihail Milev, State aid Transport
Brussels 11th April 2011
Dear Professor Kay,
Thank you for your e-mail. I can clarify that according to Council
Regulation No 3577/92 of 7 December 1992 applying the principle
of freedom to provide sevices to maritime transport within Member
States (maritime cabotage), (OJ L 364 , 12/12/1992, p.7.) there
is no prohibition to use (old or new) vessels provided by the State
on a route where a Public Service Obligation (PSO) is imposed on
passenger transport, whereas vehicle transport is also provided
on commercial terms by the same service provider. However, the fact
that State owned vessels may be given at the disposal of the company
should be known by all bidders at the time the public tender is
organised. In addition, bidders should also have the possibility
to bring their own vessels instead.
Should new boats be provided by the State for the passenger transport,
the PSO compensation for passenger transport should be reduced accordingly.
If such vessels can also be used for freight, part of their price
should be proportionally allocated to freight transport and reimbursed
by the PSO provider either immediately or should be deducted together
with interest from the compensation it receives for the carrying
out of passenger transport. Finally, separate accounting and appropriate
cost allocation between the passenger and vehicle transport should
be ensured.
Please note that other specific conditions apply to the Gourock-Dunoon
route which are contained in Commission Decision of 28.10.2009 on
the State aid No C 16/2008 (ex NN 105/2005 and NN 35/2007) implemented
by the United Kingdom of Great Britain and Northern Ireland Subsidies
to CalMac and NorthLink for maritime transport services in Scotland,
OJ L 45, 18.2.2011, p.33.
I hope this is clear.
Kind regards,
Mihail Milev
Directorate General for Competition ( DG COMP)
Unit F2 - State aid Transport
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