159. Some more far-reaching suggestions were also made for reorganising ferry routes more fundamentally. These included using the ‘island bridge’ concept with short ferry links being established between islands in close proximity. Another suggestion was to construct fixed links to replace ferry services in certain locations.¹⁰⁷ Councillor Roy Pedersen told the Committee about the possible advantages of land bridges—

‘If the distance that a ferry travels can be reduced, which is possible in many cases, that would give a saving in time, fuel consumption and emissions; it would also enable the route to be operated more frequently, with probably a smaller vessel.’¹⁰⁸

160. In relation to fixed links, Duncan MacIntyre explained that ‘the HITRANS view is that, if we can improve the service by replacing a poor ferry service with a better service that includes a fixed link, we must consider that. The possible Coll to Tiree link has been mentioned.’¹⁰⁹ A respondent to the Committee’s online survey argued that the viability of fixed links between islands should be assessed—

‘What are the economic, social and environmental consequences of fixed road links between more of the isles? Over what timescale do they become finacially viable? The answer is that we don't know because it's never been properly answered which I think is a poor way of dealing with social policy.’¹¹⁰

161. The Committee heard that the idea of constructing fixed links was also being investigated in Shetland. Ken Duerden of ZetTrans explained to the Committee—

‘Realising that we would have to consider replacing infrastructure—vessels and terminals—for the interisland ferry service, we felt that it was important to consider other options such as fixed links… Over the life of a tunnel, it could be more cost effective to have such a fixed link than to have several generations of ferries and terminals with their on-going operating costs.

In parallel with our consideration of whether fixed links would be appropriate, three different STAG appraisals are taking place—of the Whalsay link, the Bluemull link and the Bressay link—to see how best we can deliver them.’¹¹¹

Port infrastructure

162. The Committee heard some views that significant investment to bring inadequate port infrastructure up to the required standard would help improve ferry services in the longer term.

163. The Committee heard from a number of ferry users who commented on the problems affecting their particular ferry ports. The Committee heard, for example, a large number of complaints from users of the ferry service from Ardrossan to Brodick, with Andrew Walsh explaining in his written submission that—

‘There is clearly an issue with the docking berth. Because the ferry has to turn such a tight corner into Ardrossan and because the prevailing wind makes this manoeuvre particularly hazardous, the ferry service is more liable to disruption and cancellation than might be the case with an easier berth.’¹¹²

164. Two committee members visited Brodick in March 2008 to speak with Arran residents about this problem and the negative impact on the island of high levels of cancellations of winter services.

165. The Committee also heard comments about the limitations of Aberdeen harbour in accommodating NorthLink vessels.¹¹³ Councillor Allan Wishart of Shetland Islands Council indicated that it might be difficult for the harbour to accommodate ships larger than the current NorthLink boats, explaining ‘it is not the case that bigger ships would not be able to get into Aberdeen harbour; the difficulty relates to berthing arrangements.’¹¹⁴

166. Representatives of trade unions also suggested to members during a fact-finding meeting in Shetland that there is a need to look at improvements to Aberdeen harbour to ensure access in bad weather. They informed members that it is a matter for the harbour board to take the decision to close the harbour to avoid the risk of a vessel grounding at the harbour entrance. The representatives also indicated that surveys are currently being undertaken to assess how improvements might be made and that Rosyth is available as a back up.

167. Shetland Islands Council also suggested that ‘many of the ferry terminals are reaching the end of their design life and are in poor state of repair’ and that ‘considerable capital expenditure is required in coming years for both ferry and terminal replacement.’¹¹⁵ The Scotch Whisky Association commented in a written submission that it is important that ‘greater priority is paid to ensuring local piers and infrastructure can accommodate each island’s fuel oil delivery requirements.’¹¹⁶ The Committee also notes views which have been expressed that at some more remote locations, facilities for passengers waiting for ferries can be poor.

Crew arrangements

168. The Committee heard some views that new crewing arrangements might be necessary in order to deliver certain improvements to ferry services, such as extended timetables. The restrictions associated with working hours regulations were highlighted by some respondents. Orkney Islands Council made the point, for example that—

‘One limitation is the Hours of Work and Rest Regulations for persons working on board ships, which effectively states that any one person must have at least ten hours rest in any twenty-four hour period, and at least seventy-seven hours rest in any seven day period. This, along with a lack of certificated accommodation on board vessels leads to severe timetable restrictions.’¹¹⁷

169. Councillor Donald Manford explained that—

‘As well as increasing service frequency, lengthening operating hours is a major concern. When crews live on board ships, it is difficult to achieve that increase in hours; we are stuck because of the working time regulations. An answer to that problem is to run shifts, as some companies do, with shore-based crews who live on the islands when possible.’¹¹⁸

170. John Docherty of the UNITE union told the Committee that—

‘The flexibility involved in the hours of rest directive is different from that around the 48-hour week. I imagine that a swing towards later sailings will have a bigger impact, which will mean that we will have to employ more crew to maintain the extended timetables that will be required for some routes. We do not have a problem as such, but I understand that the smaller ferries will have problems.’¹¹⁹

171. The impact on communities of the restrictions imposed on crew working hours was highlighted in a written submission from Rousay, Egilsay and Wyre Community Council, which stated—

‘There are repeated requests to the Community Council for year-round sailings as for seven months of the year (October to April inclusive) we do not have Sunday sailings. The Community Council is regularly told by Orkney Ferries that the crew are not allowed to increase their hours as this would contravene Maritime and Coastguard Agency Hours of Rest regulations.’¹²⁰

172. A further issue highlighted in evidence related to the future staffing of ferries. The Scottish Chambers of Commerce suggested that ‘we are heading for a shortage of trained cadets’ while the SCDI stated that ‘national initiatives are needed to promote seafaring careers.’¹²¹ A joint submission from ZetTrans and Shetland Islands Council informed the Committee—

‘The maritime industry is currently suffering from a shortage of qualified seafarers. It is anticipated that the situation will worsen. Shetland Island Council operates in house training schemes for deckhands and sponsors deck and engineering officer cadets through a scheme operated by the nautical college in Scalloway, Shetland. National initiatives to train seafarers would assist with this problem.’¹²²

173. During a fact-finding meeting in Gourock, representatives of CalMac Ferries also raised with members the issue of the shortage of marine staff in the UK. In doing so, they indicated that CalMac is now directly recruiting trainee staff itself in an effort to address this problem.

More flexible contract arrangements

174. The Committee heard a number of views suggesting that future contracts between the Scottish Government and ferry operators should be made more flexible in order to deliver a more responsive and innovative approach to delivering ferry services. The Committee heard some views that the current contracts were so inflexible that securing even a minor timetable change to a service was a time-consuming and bureaucratic process. These views ran contrary to the impression given by the Minister for Transport, Infrastructure and Climate Change in remarks highlighted earlier in the report. In a written submission, the Scottish Crofting Federation commented—

‘There is a feeling that, following the wasteful and unnecessary tendering exercise on Caledonian MacBrayne services, its routes and timetables are inflexible and set in tablets of stone, with an inability to meet the legitimate expectations of island communities or to be commercially innovative.’¹²³

175. Comhairle Nan Eilean Siar argued that—

‘Capability to change must remain within the ferry service contract during the current six year period. During the consultation on the details of the proposed CHFS contract a route development grant was proposed to ensure that services would not be contractually constrained and options for local improvements could at least be tested over a short period. There is no evidence that such development funding is in place and changes to the services even minor alterations which are not revenue neutral require ministerial approval.’¹²⁴

176. Councillor Roy Pedersen suggested that the overall impact of the current contracts was to stifle innovation—

‘In essence the single tender specification required bidders to operate the current routes, to the current schedules with the current ships using the same crews under the same terms and conditions and applying the same scale of charges. The opportunity for innovation was virtually eliminated.’¹²⁵

delivering improvements

177. In the last section of the report the Committee has identified strategic proposals that it considers warrant further investigation to establish whether they could improve ferry services in Scotland. This section outlines how this might take place.

178. It is important to emphasise that the Committee is not necessarily endorsing any of the suggestions described above. The Committee accepts that they could be considered ambitious proposals. But the Committee strongly believes that they should be properly assessed and discussed. This does not appear to have happened in the past. It seems to the Committee that, in recent years, little new thinking or real innovation has taken place in respect of delivering ferry services in Scotland. In most cases, established practice has prevailed.

179. Duncan MacIntyre of HITRANS suggested—

‘We are doing the same things that we did 30 years ago. We have changed the vessels and their names, but the speeds are no different and in some ways services are worse.’¹²⁶

180. This section of the report will argue that a full assessment of all options for improving the ferry network is now needed. It will discuss how the Scottish Government’s ferry review might be the best and most appropriate mechanism for discussing and assessing the more strategic improvements to ferry services. The Committee will acknowledge, however, that it is not yet clear what precise form the review will take. The Committee will make recommendations in order to ensure that the review is sufficiently ambitious and effective enough to meet the aspirations of ferry users.

Need for new thinking

181. The Committee is under no illusion as to the challenges that need to be overcome in order to deliver improved ferry services. However, the Committee believes that change needs to occur. There certainly appears to be an appetite for change from ferry users as well as an acknowledgement that current ferry services seem to be clinging to established practices rather than embracing the 21st century. The Committee notes, for example, the comments of Colin Woodcock, a user of the Oban to Tiree service—

‘There seems little or no flexibility to respond to changing needs or passenger numbers. Routes, timetables and vessels are all fixed – often providing an out-of-date service for a set of circumstances that have not prevailed for a number of years. There seems to be little strategic thinking or modelling for future needs.’ ¹²⁷

182. The Committee heard various other views suggesting that a new approach was needed in the delivery of ferry services. Councillor Donald Manford told the Committee that policy makers should go back to first principles when thinking about ferry services—

‘We must get to grips with what the transport needs are and get a deeper understanding of them. We spend so much time going on about problems and difficulties that we lose sight of how the situation has come about. Our present-day communities are different from those of 50 years ago, and have different needs. Communities are far more interdependent now, often because travel from one community to another is required for legal or statutory reasons.’¹²⁸

183. Duncan MacIntyre of HITRANS appeared to agree, commenting that ‘no one has ever turned over the sheet of paper and asked what we should really be doing.’¹²⁹

184. Bill Davidson, managing director of NorthLink, told the Committee—

‘It would be helpful for the industry and the communities that we serve to know where we are all trying to go with ferries for the future.’¹³⁰

185. Blair Fletcher of Argyll and Bute Council made the point that—

‘I believe that a window of opportunity for that is coming up because, in relation to ships that are being built and ships that have been ordered, there is not much on the horizon. So much has happened over the past 30 years that we need to take a fresh look at how the routes have been developed and what we should do.’¹³¹

186. The Committee also notes that there is a reasonable length of time before the end of the current contracts, and therefore a real opportunity has arisen to examine ferry services in a more strategic way and to provide a vision in policy terms for the future development of the ferry network.

Scottish Government ferries review

187. The Committee believes the Scottish Government’s ferries review represents an important and genuine opportunity to develop proposals for a new strategic policy direction for ferry services. The Committee welcomes the fact that the Scottish Government is carrying out such a review. The planned review was mentioned briefly in the National Transport Strategy, a document which, it is fair to say, did not address Scotland’s ferry services in great detail.¹³²

188. The Committee questioned the Minister for Transport, Infrastructure and Climate Change on how far advanced the plans for a ferries review were. The Minister told the Committee that the Scottish Government was ‘working up to the review’ and was about to commission some research. In relation to the timescales for the review, the Minister indicated that he was being driven by the expiry of the two contracts in 2012 and 2013. In evidence, he stated—

‘Your committee's investigation—and, indeed, the report that I expect will emerge—is giving us a focus and considerably helping our work, so we might able to short-circuit things. I do not want to make a commitment to a particular timescale, but we have taken the first steps. Perhaps I do not have as much to say on this matter as you might have wished me to.’¹³³

189. As to the precise contents of the review, the Minister explained—

‘We certainly want to ask communities around our coasts some of the questions that you have been asking in your inquiry. For example, is the route network the right network? Should certain routes be redirected or added? Have things moved on to such an extent that some routes are no longer required? There are clearly areas where people want improvements and others where they are broadly satisfied with the network. We need to flesh out such matters.’¹³⁴

190. A Scottish Government official described the process, currently underway, of developing a remit for the ferries review—

‘I certainly anticipate that, as part of the scoping exercise, we will liaise with and consult a range of operators, users and local authorities. There will be a great deal of engagement with local authorities and other key stakeholders and, given the extent of the exercise, I imagine that there will be public consultation too…’¹³⁵

191. John Ewing, Head of the Scottish Government Transport Directorate, commented that the strategic review of ferry services will also consider future investment requirements—

‘We are asking CMAL to undertake some consideration of the shore infrastructure and the sea-borne infrastructure… The challenge is to strike a balance between providing all-purpose vessels, which can carry anything from dangerous cargoes to people's caravans, and providing fast passenger-only vessels. That is part of what the strategic review needs to consider’¹³⁶

192. A member of the Committee was involved in an exchange with the Minister and his officials on whether the Scottish Government ferries review would consider the question of land bridges—

‘John Ewing (Scottish Government Transport Directorate): If it [the question] is put to us, we will ask it.

Stewart Stevenson:Given that Mr Gibson has raised the issue, he may take it that the question has been put.’¹³⁷

Influencing the Scottish Government review

193. It is clear to the Committee that the Scottish Government ferries review is not at a particularly advanced stage. It does not yet have a clear remit, nor a clear timescale for completion. As to the contents of the review, John Ewing’s comments regarding investment requirements for new vessels suggest that it will be fairly wide ranging, but the exchange regarding the issue of land bridges perhaps hints that the remit is far from clear.

194. Despite these concerns, the Committee believes that the Scottish Government ferries review is, on balance, the most appropriate vehicle to take forward longer term proposals for improving ferry services. The Committee, however, has some doubts as to whether the review, as currently envisaged by the Minister and his officials, fully meets the ambitions of both the Committee and ferry users.

195. The Committee therefore makes the following recommendations, which it believes the Scottish Government must implement in order that the review can effectively analyse options for improving ferry services and set out a programme of action.

Recommendation One: The Scottish Government should not wait for the completion of the review to take action to improve ferry services. The Committee has highlighted at the start of this report action that could be taken in a relatively straighforward manner to improve services without any fundamental changes to the ferry network being required. These proposals should be taken forward immediately. The existence of the review should not be used as an excuse to postpone all initiatives to improve ferry services.

Recommendation Two: The Scottish Government should state the specific timescale for the completion of the review and should devote the necessary government resources to ensure it is completed within that timescale. It is considered by the Committee to be essential that the review is completed well in advance of the end of the current ferry contracts operated by NorthLink and CalMac Ferries. The Committee did not sense that the review was being taken forward with any particular urgency and this must change.

Recommendation Three: The Scottish Government should take into account in its review the evidence received as part of this inquiry. The Committee has received a substantial body of evidence which it believes will be of invaluable assistance to the review. The Scottish Government should also conduct a full public consultation as part of the review, and make every effort to speak with a wide range of individuals and groups across all communities.

Recommendation Four: All of the proposals identified for improving ferry services in the long term, noted by the Committee in this report, should be fully assessed by the Scottish Government as part of the review. These proposals have been discussed earlier in this report and include—

•The potential for introducing new vessels, including proposals such as—

• faster and more fuel-efficient vessels
• the use of catamarans
• replacing large single ferries with two or more smaller ferries
• leasing vessels rather than constructing them
• streamlining the process for constructing new vessels

•The potential for new thinking on timetable changes, such as extending sailing to the early morning and later evening, more frequent sailings and improved sailing times in winter

•The scope for new routes, including proposals such as—

• whether new ferry routes should be introduced
• reconfiguring the ferry network in the Clyde and Hebrides in a more effective way

•The scope for alternatives to existing ferry routes such as—

• the ‘island bridge’ concept
• fixed links

The need to invest in port infrastructure to bring it up to the required standard

The potential for new arrangements for crewing ferries in order to deliver better and more flexible ferry services

The scope for building more flexibility into future contracts between the Scottish Government and ferry operators, to ensure that services are responsive to the needs of users

Recommendation Five: All of the suggestions made above must be assessed fully by the Scottish Government, conclusions reached and then published regarding their viability. The Scottish Government should clearly state whether it intends to take them forward and, if not, why not. These proposals should be considered together, not on a piecemeal basis. This is because so many of the issues are interlinked.¹³⁸ It is vital that a coherent overall strategy for ferry services is developed.

Recommendation Six: The review should outline how the Scottish Government proposes to address the constraints which have, in the past, prevented the delivery of improved ferry services. As a starting point, the Committee recommends the following action—

Clearer leadership in developing ferry policy, articulated and driven by one body, the Scottish Government

A more streamlined process which makes it easier for ferry operators to make changes to services within their contracts, if they are designed to promote improved services and facilitate innovation. The new arrangements should contain appropriate safeguards for communities’ lifeline services.

Recommendation Seven: One of the key features of the review should be an exercise to consider the transfer to a new maritime division of Transport Scotland, the responsibility for the future strategic direction of ferry services, the development of gaps in the market, and the strategic management of CalMac Ferries, NorthLink Ferries and CMAL.

Recommendation Eight: A decision on the way forward for ferry services in Scotland should be clearly articulated in a document published following the completion of the review. This document should be the subject of a parliamentary debate and scrutiny by this Committee. The document should contain full information on how any proposals will be funded, the timescale for implementing change and the body or bodies to be charged with delivering change. Finally, the document should state how its proposals will take account of any decision reached by the European Union following its investigation into subsidies to CalMac Ferries and NorthLink Ferries.

road equivalent tariff

Introduction

196. The report will now discuss several discrete issues which were raised during the inquiry. The first of these issues is the concept of Road Equivalent Tariff (RET). RET involves setting ferry fares on the basis of the cost of travelling an equivalent distance by road.

197. The Scottish Government announced on 13 August 2007 a study to establish the most effective and sustainable structure for a RET pilot scheme for setting ferry fares.

198. According to the Scottish Government—

‘The first phase of the study will:

• review approaches to fare setting for public service ferries in other countries, including the RET approach
• offer definitions of RET that could be applied to all categories of passenger and vehicular traffic in the context of ferry fares for the Clyde and Hebrides and Northern Isles routes which are subsidised by the Scottish Executive
• provide an initial analysis of the potential impacts (especially in economic and social terms) of the introduction of an RET approach
• make recommendations on the design and implementation of a pilot study applying RET on one or more of the routes connecting the Scottish mainland and the Western Isles (ie Stornoway to Ullapool, Tarbert/Lochmaddy to Uig (Skye) and Castlebay/Lochboisdale to Oban), including the choice of route(s), anticipated costs, start date, length of the pilot, operational constraints and any capacity constraints that may emerge¹³⁹
• carry out any baseline information gathering in advance of the pilot that is considered necessary for subsequent monitoring and evaluation purposes
• The second phase of the study will involve the monitoring of the pilot study, including the gathering of traffic statistics and information from, for example, ferry users and local employers (including the freight and tourist sectors) designed to allow the impact of the pilot (especially in economic and social terms) to be assessed.
• The third phase of the study will involve an evaluation of the pilot, making use of the information gathered through the baseline and monitoring exercises.’¹⁴⁰

199. In addition to assessing the impact of the pilot, the Scottish Government has indicated that the evaluation should attempt, as far as is possible, to quantify both the costs and benefits that would arise should RET be applied on a permanent basis and rolled out to other ferry routes in the Clyde and Hebrides and Northern Isles networks and the likely longer-term impacts of such a roll out.

200. The Scottish Government intends that this stage of the pilot would seek to identify any capacity constraints that would emerge from a permanent roll out and quantify the cost of increasing the capacity to meet demand, such as through additional or larger vessels and new shore infrastructure.

201. The Committee notes that on 13 June 2008 the Scottish Government published the results of the first phase of its study into RET.

202. The Committee took evidence on RET from Councillor Roy Pedersen who has had a long-standing interest and involvement in this issue. Councillor Pederen explained the philosophy behind RET—

‘Road equivalence is not just to do with fares, although they are an important part of it. Road equivalence means making a ferry as much like a road as possible, which is to do with frequency, hours of operation and shortening the passage time. There is much scope throughout Scotland to do those things. If passage time is reduced, the fare is often reduced as a consequence. I suggest that the committee's focus should be on how routes can be made more road equivalent.’¹⁴¹

Comments on RET pilot

203. The evidence received by the Committee on RET fell under several general headings.

Extent of the RET pilot

204. The decision by the Scottish Government to hold the RET pilot on routes from the Scottish mainland to the Western Isles, Coll and Tiree attracted a number of comments.

205. The Committee received a number of positive responses regarding the decision to hold the RET pilot on routes to the Western Isles. Councillor Roy Pedersen explained why he felt that this was a good decision—

‘Our key reason for choosing that archipelago is the catastrophic population drop during the past few decades. The islands seriously need a boost. In addition, the Western Isles Council undertook a good deal of detailed research during the past few years, whereas other local authorities whose areas include ferry routes showed little interest. Therefore, the Western Isles seemed a reasonable place to start. A pilot must be limited and it must be possible to compare results with areas in which the pilot did not run.’¹⁴²

206. Many of the responses focused on the potential for a beneficial impact on island residents through lower fares. A written submission from Andrew McVean argued that he was ‘…delighted with the introduction of RET as it will lessen the cost of staying in touch’.¹⁴³ Other responses highlighted the potential positive impact on island economies. Highlands and Islands Enterprise stated, for example, in its written submission that the RET pilot is ‘the most significant development to ferry services in recent years and will prove to be a tremendous boost to these communities.’¹⁴⁴

207. VisitScotland argued in evidence to the Committee that ‘we need to consider whether RET can be used to drive additional traffic outwith the summer season. If the RET pilot achieves those two things, it will be successful from our point of view.’¹⁴⁵

208. A number of comments were received from individuals and organisations representing islands outwith the pilot area. These responses generally welcomed the concept of RET, but expressed concern that locations outwith the Western Isles might be disadvantaged. A representative of the Scottish Islands Federation told the Committee, for example, that—

‘The RET scheme is to be welcomed. Such a scheme operates well in Sweden, I believe. However, the Scottish Islands Federation thinks that the pilot scheme will mean that all the other islands will be disadvantaged in comparison with those that will receive the benefits of RETs. The same feeling existed when the Skye bridge tolls were removed.’¹⁴⁶

209. Typical of the concerns were those highlighted by Argyll and Bute Council regarding the possible impact of the RET pilot on tourism—

‘In principle, we support RET. Fares need to be sorted out in some way. However, if monitoring of the pilot shows that tourism has been displaced from islands that are not included in the scheme, the Government will have to consider how to redress the balance.’¹⁴⁷

210. A similar comment was received in a written submission from Colonsay businesspeople Mr and Mrs Griffiths who stated their view that ‘during this period of experimentation it will effectively mean that Colonsay, which has not been selected for this subsidy, will be hugely disadvantaged.’¹⁴⁸

211. Ken Duerden of ZetTrans highlighted the concerns of Shetland residents—

‘The non-pilot routes are at a disadvantage when it comes to perception. Given that occasional users and users who can choose their destinations will view the pilot routes as cheaper, they will be more likely to go where those routes take them. There will be a swing—especially of tourism, and possibly even of inward business investment—away from the non-pilot routes.’¹⁴⁹

212. Orkney Islands Council felt that the principles behind RET of paying a fare according to the distance travelled might not necessarily be desirable. A written submission from Naomi Coleman, Head of Transportation at the Council, argued—

‘A further question on the principles of RET is as to whether it is appropriate to charge more for carriage on more distant isles? In the case of roads, and the question of road equivalence, roads are always available, 24 hours per day, whereas as the provision of a ferry is far different and the definition of a service is far more complex than just the distance involved in making the journey.’¹⁵⁰

213. The Minister for Transport, Infrastructure and Climate Change justified the location of the pilot RET study in evidence to the Committee—

‘We… will monitor the pilot's effect on patronage on the other ferry routes. That is a key part of our monitoring of the pilot. Of course—and of necessity when constructing a pilot—we had to make choices: pilots are not universal but are restricted in scope.¹⁵¹

‘However, we will use the pilot to inform consideration of the introduction of RET to other routes when additional resources are available.’¹⁵²

214. The pilot scheme will operate from 19 October 2008 until the spring of 2011. The Committee received some views suggesting that this was too long a period of time. A written submission from John Cable argued, for example—

‘What I am really concerned about is the length of time that the RET trial is due to be on for. Even a one year trial is likely to be detrimental to the holiday traffic to Mull, which is not on the list for reduced fares… I am really worried that there could be a three year recession in visitor numbers if it is cheaper to go elsewhere.’¹⁵³

215. Supporters of the length of the RET pilot argued, however, that it needed to be sufficiently long in order that the consequences of the revised fares fully emerged over time, and in order that two summers could be included within the assessment period.

Capacity implications

216. The Committee heard some concerns regarding the ability of ferries on the RET pilot routes to cope with additional demand. A representative of the Scottish Islands Federation told the Committee—

‘If the cost of ferry journeys were to be reduced dramatically—I should say at this point that the cost of some of the shorter routes might not be reduced, but increased—the boats might be overfilled with people just visiting for the day, which could disadvantage local people.’¹⁵⁴

217. A submission from ZetTrans and Shetland Islands Council expressed concern that RET ‘will exacerbate existing peaking capacity problems as there will be no financial incentive to use quieter sailings’¹⁵⁵ while Councillor Uisdean Robertson argued—

‘The Community in North Uist welcome the introduction of RET onto the Western Isles routes. Obviously the cheaper fares will lead to more people visiting the islands and there is no doubt that capacity problems will exist particularly on the Uig/Lochmaddy route.’¹⁵⁶

218. The Committee received a comment on this issue in a response to the online survey, which stated ‘the results of the RET trial in the Western Isles are awaited with great interest, though it remains to be seen whether the island destinations involved can cope with the extra traffic generated.’¹⁵⁷

219. Peter Timms of David MacBrayne Ltd commented on the issue of likely increases in traffic under RET, telling the Committee ‘we have not finished evaluating it, but I have seen numbers that suggest a 10 per cent traffic increase. However, the short answer is that we do not know yet.’¹⁵⁸

Financial impact of RET

220. Some respondents to the Committee expressed regret that the introduction of RET would see the withdrawal of discounts for freight users and multi-journey tickets. The Isle of Barra Transportation Committee, for example, told the Committee in a written submission—

‘In Barra we welcome the introduction of RET as this will result in reduced costs to residents, tourists and hauliers. We hope however that hard won concessions for Hay and Livestock lorries and the transport of sheep and cattle to and from Barra will not be lost in the process.’

221. Ken Duerden of ZetTrans noted that there was uncertainty among ferry users in Orkney and Shetland regarding how RET might be calculated on NorthLink vessels, commenting ‘RET applies to passenger and vehicle costs, but we are not yet aware of how cabins will be priced.’¹⁵⁹

222. Bill Davidson, the managing director of NorthLink Ferries speculated on the likely impact of RET on fares to the Northern Isles—

‘Application of the RET formula, as it stands, to the Shetland services would result in passenger fares going up rather than down because of the distance involved. Freight costs would come down, which would be welcomed by local industries. The RET formula would result in reduced fares on the Pentland Firth.’¹⁶⁰

223. In evidence to the Committee, however, the Minister for Transport, Infrastructure and Climate Change indicated that there was no chance of any fares rising under RET. He also explained the reasons why discounts previously available from CalMac Ferries would be lost under RET—

‘As a matter of principle, the policy position that I have laid down is that nobody should be worse off under RET. That does not necessarily mean that their previous arrangement will be further discounted: my policy position is that no one will be disadvantaged. However—I should develop this "however"—over a very long time, the company has built up a set of locally determined discounts for a wide range of specific interests. It is fair to say that, on occasion, the company discovers a discount that people at head office do not know about.¹⁶¹

Lack of consultation

224. Another issue raised with the Committee was the apparent lack of consultation with interested parties prior to the announcement of the details of the pilot. Trade union representatives indicated, for example, that they had not been consulted, while a representative of Mull and Iona Chamber of Commerce told the Committee—

‘I do not know anybody who had any input into the design of the pilot road equivalent tariff scheme. It seems that the scheme has changed since it was proposed that it would operate on a single route.’¹⁶²

225. Councillor Allan Wishart of Shetland Islands Council indicated that ‘it was… a surprise to us when we heard that the pilot scheme was going to run for three years.’¹⁶³

226. The Minister for Transport, Infrastructure and Climate Change justified the limited consultation which appears to have occurred on the RET pilot—

‘I have explained about some of the time pressures to make things happen… I believe firmly that we did a good job in trying to consult as many people as possible and in having an open consultation, so that if we did not go to people, they could come to us. We talked to councils, operators and a wide range of people; the consultation was pretty comprehensive.’¹⁶⁴

Private operators

227. The final point which the Committee wishes to highlight is information that emerged in evidence as to whether private ferry operators would, in principle, be able to particpate in a RET scheme. Gordon Ross of Western Ferries seemed uncertain as to whether this was the case when he gave evidence—

‘If the RET scheme were solely included within the contract and the contract were still let on a single-bundle basis, it would not apply to private operators, which would make the possibility of starting up any competing service very remote. The issue of RET and private operators has not yet been considered, but I hope that it will be part of the RET study and its findings.’¹⁶⁵

228. The Minister, however, clarified that private operators would be able to participate in a RET scheme—

‘RET, like ADS [air discount scheme], is operator neutral. The principle of RET is to support the user of the service, not the provider of the service—although, of course, it might result in increased traffic, which would benefit the provider. RET, therefore, would be available to privately owned and state-owned companies.’¹⁶⁶

Conclusion

229. The Committee notes that the RET scheme is a pilot, and is still in its initial stages. RET fares have not yet been introduced. In these circumstances, the Committee believes that it cannot comment on the impact or effectiveness of RET at this stage. The Committee is, however, concerned at the views which have been expressed about the possible impact of the pilot on areas such as capacity and tourism on islands outwith the pilot areas.

230. The Committee seeks assurances from the Scottish Government that its planned evaluation programme will monitor fully these impacts. The Committee may wish to return to the issue of RET in the months and years ahead, particularly if some of the concerns expressed about the pilot become a reality. The Committee notes that it has not found much evidence of any real consultation by the Scottish Government in advance of finalising the details of the RET pilot. The Committee recommends that the Scottish Government mounts a far more effective programme of consultation on the outcomes of the pilot.

competition issues

231. This section of the report will consider issues relating to competition and compliance with EU law. The report will firstly outline some of the general views on competition received by the Committee from interested parties. The report will then highlight views expressed by ferry companies regarding competition. Finally, the report will address the question of the current EU investigation into subsidies paid by the Scottish Government to NorthLink and CalMac Ferries.

232. Throughout the whole of this report, the Committee has looked forward to suggesting improvements to ferry services. This approach is also taken in this section. The Committee accepts that there are strongly held views on the handling of the last tendering process, however the purpose of this report is to look to the future.

233. The Committee acknowledges the obvious importance of the question of the legal basis on which Scottish ferry services are supported. However, the Committee considers that this issue should not dominate policy discussions to the extent that operational and other service improvements are postponed due to uncertainty about the future.

234. The Committee would also caution against any suggestions that the Scottish Government’s ferries review should be postponed to allow the EU investigation to be completed. An 18 month delay (or more) to the start of the process by which the Scottish Government will develop a clear ferries strategy would benefit no one. The Committee understands that a clarification of the legal basis on which ferries are supported in Scotland will ultimately be important to the development and implementation of this strategy. However, the Committee hopes that the review will be sufficiently wide ranging that its core conclusions will be relevant regardless of the outcome of the EU investigation.

General views on competition

235. The Committee received a number of views on competition that offered general comments about the issue rather than making specific recommendations about the future arrangements for supporting ferry services in Scotland.

Cost of the tendering exercise

236. The Committee heard a number of complaints about the cost of the recent tendering exercise for Clyde and Hebrides ferry services and criticism that the process did not result in any improved services. Blair Fletcher of Argyll and Bute Council told the Committee, for example—

‘I believe that the tendering exercise was a substantial cost to the public purse. I am not sure that the result would have been any different had there not been a tendering exercise.’¹⁶⁷

237. A number of trade union representatives spoke out against tendering. Paul Monloney of Nautilus UK told the Committee—

‘Our view has always been that the tendering process that CalMac had to go through conflicted with statements that were made in Europe that nations need to do everything they can to enhance and protect the maritime skills base. We did not believe that the CalMac services should be put out to tender.’¹⁶⁸

238. The Committee notes that alternative views also exist within publicly owned service providers as to whether there is a requirement to tender. Ken Duerden of ZetTrans stated that—

‘The Shetland interisland services are owned and operated by Shetland Islands Council. In the mid-1990s, we were aware of an interpretation of the legislation that seemed to indicate that tendering was required. However, since then there has been a series of notable judgments, such as the recent Agência Nacional de Viagens judgment, that suggest that, if a lifeline service is owned and operated by a public body, it may not have to be put out to tender under the maritime cabotage regulations and European Union state aid rules, although the procurement regulations might require it to be put out to tender if the council is of a mind to do anything other than simply continue to operate the services itself.

Although I am not aware of those judgments being tested in relation to Shetland Islands Council's interisland services, we believe that the view is moving towards the position that those routes do not need to be tendered. We hope to do some work in the coming months to explore the issue further.’¹⁶⁹

239. Bill Davidson, managing director of NorthLink, outlined some of the potential problems associated with tendering where the contract to be tendered was comparatively short—

‘I mentioned the 30-year asset point. A lot of costs are associated with setting up and running a ferry company. If the contract is for only five or six years, companies have to recover all those costs and make profits within that period. That restricts companies considerably…

Companies that have good ideas would wonder whether to implement them or hang on to them and implement them if and when they win the new contract. The constant tendering inhibits companies and determines when they do things. It adds fairly substantially to the costs.’¹⁷⁰

Views on desirability of competition

240. Blair Fletcher of Argyll and Bute Council argued that many of Scotland’s ferry routes were unsuited to competition—

‘We do not have a basis for competition, because many of the services that we are talking about are lifeline services, which operate to small communities. In a great number of those services, there is not the necessary critical mass to invite competition.’¹⁷¹

241. Some other respondents argued that, in the debate about competition, policy makers should not lose sight of the important role of ferries in supporting communities. Highlands and Islands Enterprise stated in a written submission—

‘Ultimately though, while competition can drive improvements, HIE is of the view that the principal requirement is for a ferry network that fully serves the needs of the island communities irrespective of how this is best procured and delivered.’¹⁷²

242. The Committee received some written submissions supporting the introduction of competition on ferry routes. Eamonn Butler argued, for example, that ‘the stimulus of competition invariably spurs people to improve their service, and we feel that CalMac should not be permitted to resist competition any longer.’ A response to the Committee’s online survey stated ‘improved competition on all routes is important to enable passengers to get as best a service as possible.’ Other written submissions lamented the lack of competition on most ferry routes, with Helen Patterson, who uses the Oban to Tiree route, simply asking ‘competition? What competition? Caledonian MacBrayne dominate.’

243. Councillor Roy Pederson argued in evidence to the Committee that—

‘There is a lot of scope for the private sector to contribute to ferry services in Scotland. The current tendering system seems almost designed to inhibit the private sector in contributing... Something more flexible is required for the future. Perhaps we could test the water on a few routes with a private operator contracted to provide the service. That might well be instructive.’¹⁷³

244. Professor Alf Baird argued that the state should not have a role in relation to the delivery of ferry services, telling the Committee—

‘There is substantial evidence to confirm my view that it is neither necessary nor desirable for the state to operate maritime transport services. There is also considerable evidence that the state is unable effectively to operate a commercial shipping business and that subsidies are getting out of control.

In my view, the state should seek to withdraw from commercial ferry operations at the earliest opportunity, in line with policy and trends throughout the EU and, indeed, in Norway, with or without subsidy, as required.’¹⁷⁴

245. Bill Davidson, the managing director of NorthLink, took issue with some of Professor Baird’s comments at a subsequent meeting of the Committee—

‘I do not accept Alf Baird's argument that the fact that companies are state owned means that they are not well run. I spent many years as a management consultant, and I have visited some diabolically run private sector companies and some public entities that have excellent managers, are customer responsive and do a good job. I do not share Alf Baird's view of private good, public bad.’¹⁷⁵

246. Professor Neil Kay considered that discussions about the future of ferry services in Scotland should not be thought of in terms of ‘competition versus monopoly’ or ‘public sector versus private sector’, but rather simply in terms of compliance with relevant European law—

‘The Commission has made it clear that it has no preference for private or state ownership, which is a matter for individual Governments. Therefore, it is back to front to set a basic set of policies to encourage one form of ownership rather than, to begin with, working out what the framework should be for compliance with that set of rules, guidelines and law. We should establish the principles and then work out how best to comply with them.’¹⁷⁶

Views of ferry operators

247. The Committee sought the views of a number of ferry operators on the issue of competition and compliance with EU law.

248. Gordon Ross, the managing director of Western Ferries, the privately-owned operator of an unsubsidised car ferry service between Gourock and Dunoon, cited route unbundling as his biggest goal—

‘The critical issue is the bundling of the subsidised ferry routes. It would probably be beyond the ability of small operators such as Andrew Banks and me to take on a network with 26 routes. Certainly, we are not prepared to take the risk of the cost of putting together such a complicated bid. If we had route-by-route or bundle-by-bundle tendering, the routes would become more attractive to Western Ferries and other operators, including European and English companies.’¹⁷⁷

249. Andrew Banks is the managing director of Pentand Ferries, a privately-owned company that runs unsubsidised scheduled ferry services between Gills Bay, near John O’Groats and St Margaret’s Hope on South Ronaldsay, Orkney. He told the Committee ‘all we want is a level playing field’¹⁷⁸ between state-subsidised services and the private sector. This point was echoed by Western Ferries who stated ‘we must ensure that, in the Scottish ferry sector, private and subsidised operators can compete on a level playing field.’¹⁷⁹ Gordon Ross of Western Ferries went on to make the point—

‘I am looking for the ability to tender for routes that can be run on a commercial basis. Some routes that CalMac runs will never be provided on a commercial non-subsidised basis.’¹⁸⁰

250. Both operators argued that the fact they were private companies meant they could respond quickly to market conditions. Andrew Banks of Pentland Ferries stated, for example, ‘the timetable suits the public better; that is why it is supported. We can change times if the public demand that.’¹⁸¹ Gordon Ross of Western Ferries explained—

‘In essence, the advantage is flexibility. Our timetable is unregulated. We can adapt quickly to alterations in our customers' travelling patterns. For example, we have this year increased our number of early-morning sailings. We now run a 6.15 service Monday through Friday, whereas that was previously run only on the Monday. We did that because we saw that early-morning ferries were becoming busier.’¹⁸²

251. The position of CalMac Ferries on competition was outlined in a written submission to the Committee—

‘[CalMac Ferries Ltd] believes that maintaining the existing “bundle” of 24 routes in the format of the current network, which may be further developed with the addition of new routes, best serves the island communities off the west coast of Scotland and the nation’s taxpayers. The network approach offers a consistent level of service across 24 routes which could not be matched by a single service provider.’

252. The written submission from CalMac Ferries went on to argue that the bundling of routes provided for significant advantages—

‘The integrity of this network leads to efficiency gains in terms of the flexibility and interchangeability of the fleet, crew mobility (including succession and career development), economies of scale, shared costs and uniformity of pricing, marketing and policy decisions, which provide additional value to the substantial sums of public subsidy involved. This also makes best use of the vessels specifically designed to operate on these routes, which face some of the most extreme winter weather in Western Europe.

The risk posed by “cherry pickers”, where new competition might be introduced on a route, even for part of a year, would have a major impact on CalMac’s interests and would inevitably lead to the need for additional subsidy if the existing level of service provision is to be maintained.’¹⁸³

EU investigation

253. On 16 April 2008, the European Commission announced that it had decided to open a formal investigation procedure to look into complaints about subsidies paid by the Scottish Government to NorthLink and CalMac Ferries.

254. The European Commission stated its view that it may be that such support constitutes fair compensation for the provision of ferry services and complies with EU rules on state aid. However, the Commission indicated that it required more information to check that the mechanisms used in recent years did not fall foul of these rules, in particular, whether there had been any overcompensation or undue distortion of fair competition.

255. EU Vice-President Jacques Barrot provided reassurance to communities who might have been worried about the implications of the investigation—

‘I am well aware of the importance of lifeline ferry services to ensure the survival and prosperity of isolated island communities in Scotland. This is actually a very important reason why we should ensure full compatibility with EC law and provide legal certainty for the way these services are organised.’¹⁸⁴

256. A statement issued by the European Commission indicated that its decision to open an investigation did not mean that it was questioning the need for a regular and affordable lifeline ferry service for local communities, nor did it threaten the continued provision of such essential services in the future. However, the statement explained that, in line with EU Treaty rules, the mechanisms put in place to finance these services must remain proportionate to such public interest objectives. The statement also explained that the decision to open the formal procedure does not prejudge the final view the Commission will take once its investigation has been completed.

257. The chairman of David MacBrayne Ltd., Peter Timms, told the Committee—

‘Broadly, we welcome the inquiry, because it should draw a line once and for all under the question whether our contracts are fair and provide for a proper service.’¹⁸⁵

258. Bill Davidson, managing director of NorthLink, felt that —

We have nothing to fear from it, as we have nothing to hide. It is for others to assess whether there is distortion of competition. I could make a counter-argument, but I will not.¹⁸⁶

259. Professor Neil Kay argued that the EU investigation provided a good opportunity to establish a sound legal footing for the future delivery of ferry services—

‘The tier 1 question is whether we comply with European Community law. After that, we can talk about other matters, such as the form of ownership, bundling or tendering.

The problem is that, for the past several years, the debate has not been predicated on the proper grounds. Therefore, we have all sorts of voices arguing this and that. Until we sort out the basic point of how to comply with EC law, such subsidiary questions as the form of ownership cannot be answered properly. That may sound like an evasive answer, but it is important because we have been carrying on the debate on inappropriate grounds and principles. We have to reset the debate and then consider basic principles.’¹⁸⁷

Future arrangements for complying with EU law

260. The Committee wishes to note briefly some of the different proposals that witnesses considered should be put in place in order to comply with European law in the future.

261. Professor Alf Baird expressed his preference for the ‘unbundling’ of the current ferry network—

‘Fundamentally—certainly in the case of the Western Isles—we must get away from the single bundle concept. A key problem for private sector bidders is having to bid for the entire system of 30 ships and 1,000 people or whatever; it is just too massive and inflexible. A private sector operator who bids successfully for that system must take everything that is there.

Essentially, we must start with a clean sheet. In effect, we should say that the fleet is for sale, as all ships are, at one time or another—they are mobile assets. We should then put each route out to tender. It does not have to be an onerous or inflexible process; it should be a flexible one that involves finding innovation on a route-by-route basis. The same companies might bid for and win different routes—one company might win some and lose others.’¹⁸⁸

262. Professor Neil Kay set out for the Committee his vision for what was required—

‘We must not start from where we are; we must start by building what we should have built seven or perhaps eight years ago. At that time, we received very clear signals about what needed to be done. We need to create an independent regulator and develop a system for public service obligations and adherence to the Altmark guideline.

I made the point in 2001 that, in addition to an independent regulator and a properly designated operator of last resort, we need a proper statutory framework for the particular set of problems. That was almost an aside, but for every other introduction of competitive tendering in a UK industry that has been a given.’¹⁸⁹

263. He pointed out in a written submission what he considered to be the advantages of an independent ferries regulator—

‘An effective independent regulator whose mandate included awarding and monitoring tenders would facilitate the pursuit of the public interest and help insulate and buffer commercial and political interests from each other.’¹⁹⁰

264. Professor Kay also argued in favour of the application of a system of Public Service Obligations (PSOs) on the Scottish ferry network. The Committee is aware that different definitions exist as to what precisely constitutes a PSO. The Committee understands, however, that PSOs are usually defined as any obligation applying to transport operators to ensure the provision of a service to defined standards of continuity, regularity, capacity and pricing, which it would not provide if it were solely considering commercial interests.

265. Member states can apply a PSO to scheduled air and ferry routes serving peripheral or development regions within their jurisdictions and on certain cross-border routes. A PSO should only be considered where the maintenance of regular air or ferry services is considered vital for the economic development of a region. Where a member state wishes to create a PSO a public invitation to tender (ITT) must be published in the Official Journal of the European Communities.

266. Councillor Donald Manford made the following comments on the issue of public service obligations—

‘I see no reason why each of the service areas should not be given a type of service obligation of its own for a minimum level of service. Where that can be provided, there is no reason why there should not be the opportunity to consider the introduction of competition.’¹⁹¹

267. Stephen Boyd of the STUC set out the position of the trades unions—

‘First and foremost, we supported tendering the Clyde and Hebrides services as a bundle. I am aware of no academic proposals to tender those services in another way.’¹⁹²

‘If a PSO maintained the current services, allowed scope for innovation that might improve those services and safeguarded our members' terms and conditions, we would be keen to study any proposals.’¹⁹³

268. The Minister for Transport, Infrastructure and Climate Change argued, however, in favour of the use of Public Service Contracts rather than PSOs. The Committee understands that a Public Service Contract (PSC) is usually defined as, put simply, a contract between a public body and another organisation to provide a service. PSCs are normally only awarded after a competitive tendering exercise similar to that described above for PSOs. The European Commission defined a PSC, in a 2003 Communication (COM (2003) 595), as follows —

‘Public service contracts are the instrument normally used to enshrine public service obligations where a horizontal approach applying to all ship owners intending to serve a given route may not be sufficient to meet the essential transport needs, in particular general conditions concerning the quality of a given service.’¹⁹⁴

269. The Committee understands that, in essence, a PSC allows a public body to provide a subsidy to a single operator for the provision of a single route or a bundle of routes to specified quality standards. The service quality standards required by a PSC can be far more detailed than those attached to a PSO as the maritime cabotage regulation sets out an exhaustive list of the criteria that can be attached to a PSO, where no such list exists for PSCs.

270. The Minister told the Committee that—

‘Creating a formal public service obligation in relation to ferries can be done by Westminster but not by us. Of course, a PSO merely protects the route's infrastructure; it in no way provides for there actually being a ferry service, because of the different definition of PSO in the maritime world compared with the aviation world. However, within the public service contracts that are used, it is possible to specify the frequency of the timetable, capacity and service levels, and to bind the contractor into delivering services.

Such contracts also enable us to protect the infrastructure, which could otherwise be protected by a PSO. More to the point, public service contracts are within our powers, so they are a more effective and quicker way of delivering the protection that our communities require than involving another party in PSOs, which would address only a limited part of what is required.’¹⁹⁵

271. The Minister also argued that ‘PSOs have to involve Westminster; PSCs do not. As a result, PSCs are the route for simplifying the number of actors in the equation.’¹⁹⁶

272. In subsequent written evidence to the Committee, the Minister provided further clarification of the Scottish Government's position in relation to both PSCs and PSOs, stating that—

‘A key difference between a PSC and a PSO is that a PSC gives greater certainty that the ferry services will be provided over a prescribed period. Under a PSO, an operator would be free to walk away from a route at any time. In addition, a PSC allows Governments to specify a wider range of requirements than is permissible under a PSO. In particular, a PSC allows the Government to specify matters related to the quality of the service provided whereas a PSO, under the European Regulation, is restricted to "requirements concerning ports to be served, regularity, continuity, frequency, capacity to provide the service, rates to be charged and manning of the vessel."

A PSC is therefore more suitable to the Scottish Government's purposes in seeking to secure the lifeline ferry services.’¹⁹⁷

273. The Committee notes the Minister’s view.

Gourock to Dunoon

274. CalMac Ferries, as Cowal Ferries, operates a vehicle and passenger ferry service from Dunoon Pier to Gourock Pier, with certain restrictions on its timetable. Western Ferries operates a vehicle and passenger ferry service from Hunter's Quay in Dunoon to McInroy's Point in Gourock.

275. In a written submission, Western Ferries explained to the Committee its views on the current arrangements whereby its services operated the same route as CalMac Ferries’ vessels—

‘CalMac Ferries Limited (Cowal Ferries Limited) currently receives subsidy in line with an “Undertaking” with the Scottish Government to provide a passenger-only service between Gourock railhead and Dunoon town centre. To satisfy this Undertaking, CalMac operates a ferry capable of transporting not only foot passengers but also vehicles. Over the last five years CalMac have received almost £12m of subsidy from the Scottish Government to provide the Gourock to Dunoon service.’

276. The written submission went on to outline Western Ferries’ concerns in relation to the activities of CalMac Ferries on the Gourock to Dunoon route—

‘CalMac’s vehicle service is required to be operated on a non-subsidised commercial basis however, in our opinion, the vehicle service is being inappropriately subsidised. The subsidy requirement of the current service exceeds that of a solely passenger-only service using a passenger-only vessel. Western Ferries has estimated this difference using data obtained through the Commercial Invitation 2005/06 however, this information remains subject to data room confidentiality restrictions.’¹⁹⁸

277. In its written submission to the Committee, CalMac Ferries outlined its comments on its Gourock to Dunoon service—

‘The position in relation to Gourock-Dunoon remains unresolved. The uncertainty is not good for the customers using the route; is damaging for the economy of the area and cannot be sustained as the viability of ships servicing the route is rapidly diminishing as costs escalate. The contract arrangements for the provision of the CHFS services oblige the operator to charter the fleet from the owner of the vessels, Caledonian Maritime Assets Ltd (CMAL). This has a particular impact on the Gourock to Dunoon service as the only CMAL vessels available to Cowal Ferries were built in 1974, are expensive to operate, and have only a short residual service life.’¹⁹⁹

278. The Minister for Transport, Infrastructure and Climate Change stated when he gave evidence to the Committee—

‘On the Gourock to Dunoon service, we recognise that the European Union needed to respond to complaints that were made. We welcome the initiative that the EU is taking across a range of ferry services, including the Gourock to Dunoon route, as that will give clarity for the future. We are keen to identify a solution for the Gourock to Dunoon route that addresses local aspirations while respecting European law. We remain committed to delivering the best possible outcome for the local communities involved. Of course, Cowal Ferries Ltd and CalMac will continue to provide a passenger and vehicle service on the route.’²⁰⁰

279. On the question of when the Scottish Government will make a decision on the future of the Gourock to Dunoon service currently operated by CalMac as Cowal Ferries Ltd—

‘Let me read out the Government's commitment on the issue. We said that we would "take steps to ensure the continuity of the vehicle and pedestrian service between Gourock and Dunoon to provide a service capable of meeting the needs of the local community and delivering real economic growth to the region." We continue to work on that.’²⁰¹

280. In a letter to the Committee, the Minister confirmed this position.²⁰²

Conclusion

281. The Committee agrees with Professor Kay, and a number of other witnesses, that the EU investigation provides a welcome opportunity to establish once and for all the legal basis on which ferry services can be supported by the state. The Committee believes that the EU decision, when it emerges, may also at last bring clarity as to how the ongoing debate regarding the Gourock to Dunoon route might be resolved. The Committee agrees with Professor Kay’s comments that—

‘We have to design a new system for identifying how to comply with EC law. When we have done that, we can fine tune and identify to our heart's content issues of tendering, bundling and state ownership. We have to get the system right first. We can then deal with the specific problems.’²⁰³

282. The Committee recognises that as with many other EU member states there will be a number of crucial routes which will be unviable commercially and will require state funding in order to maintain lifeline services.

283. The Committee has heard views expressed that such services should be designated as PSOs or should have clear public service obligations in the terms of the contract.

284. The Committee believes that public subsidies for ferry services for lifeline routes should be compliant with the Altmark judgement of the European Court of Justice. The Committee also believes that clear advice should be taken from the EU Directorate General for Competition and EU Directorate-General for Energy and Transport prior to any future tendering of routes and determination of bundling criteria.

285. The Committee has also heard suggestions that the EU may favour a solution whereby an independent ferries regulator is appointed, and the Committee considers that this proposal may have some merit. The Committee would also expect this issue to be considered as part of the Scottish Government’s ferries review.

286. The Committee also notes with interest the different positions taken by the Scottish Government and other commentators, such as Professor Kay, on the merits of Public Service Contracts versus Public Service Obligations.

287. Until the investigation is completed and the results known, it is not possible to reach any firm conclusions about the specific arrangements that will need to be put in place to comply with European law. The Committee does not, therefore, consider that it should make specific recommendations at this stage on the merits of proposals put forward on issues such as the use of public service obligations, route unbundling and the appointment of an independent ferries regulator. This is a debate that the Committee may wish to return to following the outcome of the EU investigation.

288. In relation to competition more generally, the Committee believes that it is right and proper that, whenever possible, the private sector should be given fair opportunity to provide ferry services, whether through participation in tender exercises or through identifying commercial opportunities independently. It also considers it important that the Scottish Government’s review of ferries should properly recognise and take into account the current and future role of the private sector. The Committee therefore recommends that the review includes a full and genuine assessment of the opportunities that may exist across the ferry network for routes to be operated on a commercially viable basis.

Challenges facing smaller operators

289. The Committee is aware that Scotland has a number of small ferry operators facing particular challenges that may differ from those faced by larger ferry companies.

290. The Committee wishes to highlight as an example the experience of the Isle of Skye Ferry Community Interest Company, which provided written evidence to the inquiry. The written submission explained that the company is a social enterprise with a board of six volunteer directors who work on behalf of 450 voting members to run an unsubsidised ferry operation between Glenelg and Kylerhea, Isle of Skye. According to the submission, its vessel, the ‘Glenachulish’, is the last working example of a manual turntable ferry.

291. The ferry business was purchased in February 2007 at a cost of £150,000 on behalf of the community. £30,000 was raised by the company, £60,000 under state aid rules by the Big Lottery ‘Growing Community Assets’ and £60,000 by HIE Skye and Wester Ross. The company employs two full-time skippers and two-full time rope men/women and two part-time rope men/women.

292. The Committee notes that the submission by the Isle of Skye Ferry Community Interest Company (CIC) illustrates some of the particular challenges faced by small operators, including difficulties in advertising their service and escalating fuel costs. Its submission raises a further issue, namely the burden imposed by compliance with certain maritime regulations—

‘The new Boat Master Regulations are imposing a burden that could put us out of business… the new regulations would require our vessel to employ skippers with an International Boatmasters Licence. The impact of this change in regulation means we will either have to recruit an individual with such a licence (we do not believe that anyone yet holds this licence), or we would have to train someone ourselves. We respectfully ask the committee to review the regulation for International Boatmasters Licence and consider if this should be applied to the Isle of Skye Ferry CIC.’²⁰⁴

293. The Committee recommends that the Scottish Government responds to the concerns expressed by the Isle of Skye Community Interest Company regarding the burden placed on it by these regulations to see whether a solution can be reached. The Committee further recommends that the Scottish Government ensures that its forthcoming ferries review includes an examination of the particular challenges faced by small ferry operators with a view to developing solutions to their particular needs.

conclusion

294. In this report, the Committee has sought to address issues that are representative of the wide range of evidence received from ferry users, operators, the Scottish Government and other stakeholders. It has identified what it considers to be the key concerns of users; the constraints and barriers faced by operators; and the aspirations that all stakeholders have for a modern, efficient and responsive ferry service that is fit for purpose in the 21st century.

295. It has produced a range of recommendations for immediate action, which it hopes will lead to improvements in the short term that will address some of the concerns raised by users.

296. The Committee has also produced recommendations and suggestions that are intended to inform the Scottish Government’s forthcoming ferries review. It expects that the Scottish Government will find these recommendations useful in providing the basis for its review and that it will now move forward to explore the areas suggested.

297. The Committee also expects that the output from the Scottish Government’s ferries review will be a national ferries strategy that will set out proposals for a network of routes that will fully meet the needs and aspirations of the communities relying on them and that will encourage the long-term sustainability of the areas they serve. It is considered imperative, however, that these proposals are underpinned by a fully co-ordinated plan for the replacement or refurbishment of vessels and any necessary upgrades to or replacement of ports infrastructure. It is also considered essential that the strategy is supported by an implementation and delivery plan that includes a realistic and achievable programme of funding, which will give confidence to ferry users that it will be delivered.

298. The Committee looks forward to engaging with the Scottish Government as its review progresses.

Annexe A

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

EXTRACT FROM THE MINUTES

9th Meeting, 2007 (Session 3)

Tuesday 6 November 2007

Ferry Links to the Scottish Islands: The Committee considered its approach to its inquiry into ferry links to the Scottish Islands. The Committee agreed to write to the Scottish Government requesting information on a) whether the new administration intends to proceed with the review of lifeline ferry services as set out in the National Transport Strategy and b) details of the nature and extent of any such review. The Committee further agreed to consider the development of the inquiry remit following receipt of the response.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

EXTRACT FROM THE MINUTES

12th Meeting, 2007 (Session 3)

Tuesday 27 November 2007

Ferry Links in Scotland: The Committee considered its approach to its inquiry into ferry links in Scotland. The Committee agreed to proceed with the inquiry. The Committee further agreed a remit for its inquiry and to issue a call for evidence. The Committee agreed to consider a further paper from the Clerks on external meeting locations at a future meeting and also to seek the approval from the Conveners Group for any expenditure associated with the inquiry.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

EXTRACT FROM THE MINUTES

14th Meeting, 2007 (Session 3)

Tuesday 18 December 2007

Inquiry into Ferry Services in Scotland: The Committee considered proposals for external meetings and Reporter visits in relation to its inquiry. The Committee agreed to hold two external meetings in March 2008 in Oban and in April 2008 in Shetland and agreed to hold a series of Reporter visits to Lewis, Mallaig, Dunoon and Arran in early 2008. The Committee further agreed that an approach be made to the Conveners Group and the Parliamentary Bureau to obtain the necessary approvals to hold the external meetings.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

EXTRACT FROM THE MINUTES

4th Meeting, 2008 (Session 3)

Tuesday 19 February 2008

Inquiry into Ferry Services in Scotland - witness expenses: The Committee agreed to delegate to the Convener responsibility for arranging for the SPCB to pay, under Rule 12.4.3, any expenses of witnesses that relate to the inquiry.

Inquiry into Ferry Services in Scotland (in private): The Committee considered its approach to its inquiry and agreed a programme of witnesses for the committee meetings.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

EXTRACT FROM THE MINUTES

5th Meeting, 2008 (Session 3)

Tuesday 4 March 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Dr Amanda Currie, Secretary, Lismore Community Council, Councillor Len Scoullar, Scottish Islands Federation and Sandy Brunton, President, Mull and Iona Chamber of Commerce;

and then from—

Blair Fletcher, Transportation and Infrastructure Manager, Argyll and Bute Council, Councillor Roy Pedersen, Highland Council and Councillor Donald Manford, Comhairle nan Eilean Siar;

and then from—

Councillor Alistair Watson, Chairman and John Halliday, Strathclyde Partnership for Transport and Duncan MacIntyre, Chair and Ranald Robertson, Partnership Manager, HITRANS.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

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6th Meeting, 2008 (Session 3)

Tuesday 18 March 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Roderick McLeod, Mobility and Access Committee for Scotland;

and then from—

Phil McGarry, Regional Organiser, RMT, Paul Moloney, Assistant General Secretary, Nautilus UK, Stan Crooke, Regional Organiser, TSSA, John Docherty, UNITE and Stephen Boyd, Assistant Secretary, STUC;

and then from—

Peter Williams, Commercial Director, First Scotrail and Marjory Rodger, Director, Confederation of Passenger Transport UK

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7th Meeting, 2008 (Session 3)

Tuesday 15 April 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Graham Bell, Press and Policy Officer, Scottish Chambers of Commerce;

and then from—

Stewart Wood, Vice President and Lisa Webb, Regional Manager, National Farmers’ Union;

Libby Woodhatch, Chief Executive, Seafood Scotland;

and then from—

David Eaglesham, Policy Adviser, Road Haulage Association; and Gavin Scott, Head of Policy, Freight Transport Association.

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8th Meeting, 2008 (Session 3)

Monday 28 April 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Daniel Thompson, Chair, Yell Community Council;

Hamish Balfour, member, Shetland External Transport Forum;

Brian Kynoch, Chair, Orkney Means Business.

and then from—

Councillor Allan Wishart, Shetland Islands Council; and

Ken Duerden, Transport Development Manager, ZetTrans.

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9th Meeting, 2008 (Session 3)

Tuesday 6 May 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Professor Neil Kay;

Professor Alf Baird;

and then from—

Ben Carter, Head of Strategic Relations, Andy Stevens, Island Manager – Shetland and Chris Maguire, Strategic Relations Manager, Visit Scotland;

and then from—

Captain Ron Bailey, Harbourmaster, ClydePort Ltd;

Guy Platten, Managing Director, Caledonian Maritime Assets Limited;

and Iain MacLeod, Chairman, Stornoway Port Authority, British Ports Authority.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

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10th Meeting, 2008 (Session 3)

Tuesday 13 May 2008

Inquiry into Ferry Services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Peter Timms, Chairman, David MacBrayne Ltd;

Lawrie Sinclair, Managing Director, CalMac Ferries Ltd;

Bill Davidson, Chief Executive, NorthLink Ferries Ltd;

and then from—

Gordon Ross, Managing Director, Western Ferries (Clyde) Ltd; and
Andrew Banks, Chief Executive, Pentland Ferries.

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12th Meeting, 2008 (Session 3)

Tuesday 3 June 2008

Inquiry into ferry services in Scotland: The Committee took evidence on its inquiry into ferry services in Scotland from—

Stewart Stevenson MSP, Minister for Transport, Infrastructure and Climate Change.

Decision on taking business in private: The Committee agreed to take all future consideration of draft reports on its inquiry into ferry services in Scotland in private.

TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

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14th Meeting, 2008 (Session 3)

Tuesday 17 June 2008

Inquiry into ferry services in Scotland (in private): The Committee considered a draft report on its inquiry into ferry services in Scotland. The Committee will consider a further draft report in private at its next meeting.

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15th Meeting, 2008 (Session 3)

Tuesday 24 June 2008

Inquiry into ferry services in Scotland (in private): The Committee agreed its report on its inquiry into ferry services in Scotland.

ANNEXE B: ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE

4 March (5th Meeting, 2008 (Session 3)) – Oral Evidence

Written evidence from Highland Council – February 2008

Ferry Services in Scotland Inquiry
Slide Presentation on behalf of Highland Council by Cllr Roy N Pedersen MA, FRSA, MCIT

The Brief:

A.Ferry Routes

B.Frequency & Timetabling

C.Capacity

D.Integration with other modes

E.Competition

A. FERRY ROUTES & REMOTE RURAL COMMUNITIES

Why Islands Need Quality Ferries

•NATIONAL PERFORMANCE FRAMEWORK

•National Outcome –live in sustainable places with access to amenities and services we need

•Sustainable communities

•Reverse population decline

•Support economic development

•Access mainland services

•Social integration

Population Change

Decade WI IOM Faroe Skye

1900s 46,000 50,000 16,000

1960s 33,000 47,000 40,000 9000

2000s 27,000 76,000 46,000 12500

Highland Council’s Ferry Interest:

•COMMUNITY PROSPERITY= Economic growth, social well-being

•18 Vehicle Ferry terminals in Highland

•5 passenger ferry terminals

•Island & Peninsula communities

•If the island communities prosper –the Highlands prosper –Scotland prospers

B. FREQUENCY AND TIMETABLE

•Business needs

•Community needs

•Journey to work service

•Accessing Services

•Freight & Delivery Service

•Tourism Service

Operating Hours

•Most Scottish Ferries stop operating at tea-time

•The solution –shift operation to give 18 hour operation (cf. Shetland & W Ferries)

•Shore based crews

Short Distance Commuter Ferry Service

•Island based

•All year Timetable -7am to 7pm

•Raasay–Suisnishto Sconser

•Mallaigto Armadale

•Kilchoanto Tobermory

Medium Distance Daily Return Service

•Island based

•Stornoway to Ullapool

•7am to 8pm

•7hrs on Mainland

•Lochboisdaleto Obanv Lochboisdaleto Mallaig

•Lochmaddyto Uig

Tourism Ferry Services

•Hopscotch & Gaelic Ring good

•Summer Cruises

•Interpretive Trips

•Historical Cruises

•Marine and Bird life

•Cultural Cruises

•Expanding tourism & Maximising Revenue

C.THE FERRY VESSELS

•Interchangable

•Appropriate

•Speed

•Capacity

•Efficiency

•Sustainable

Efficiency Comparison

EmmissionsClansman/Heb Class

•1,500 litres/hr = 100 litres/mile

•At 50% capacity = 2 litres/car/mile !!!

•The average car does 8 to 12 miles/litre

•The lesson:

•Make the sea crossing as short as possible

•It’s 20 times as efficient/environmentally friendly to drive than to use current ferries

Efficiency Comparison:

Pentland Ferries Cat Hamnavoe

£10 m 90 cars18 knots £29 m 95 cars19 knots

16 crew500 litres/hr consumed 30 crew1600 litres/hr consumed

Subsidy NIL Subsidy est. £6 m plus

Annualised Capital Costs

•£10 million will buy:

–One 90 car catamaran

–8 miles of road

–One ferry terminal

•This can be annualised at £750,000 per year (over 25 years at 6% cap and repayment)

•Annualised capital costs can then be offset against reduction in operating losses

Getting the Ship Spec Right:

NORTHLINK VISENTINI

£31 m build price £31 m build price

24 knots /20 MW 24 knots /20 MW

300 sleeping berths 300 sleeping berths

450 lane metres 2,000 lane metres

D.THE FERRY TERMINALS

•Uniform Standards

•Poor Weather Approach Berthing

•Interchange Facilities for passengers

•Interchange facilities for Bus/train

•Information Services

E. COMPETITION AND ECONOMICS

•Efficiency incentives

•Maximising Revenue

•Reducing costs

Service Quality versus Subsidy

How do we strike the balance?

Some Fundamental Issues

•Subsidy:

–Main costs –fuel, crewing, capital

–Main Revenue –fares and charges + subsidy

•Ferry Impedance versus Road Equivalence

•Traffic generation:

–Passage time

–Frequency

–Hours of operation

–Price

What is road equivalence?

•Introduction of RET initiative good

•Roads are the universal transport mode

•They connect everywhere with everywhere

•Almost !

•If water intervenes there is discontinuity

•Ferries act as a floating bridge

•Ferries constrain traffic (impedance)

•“Road equivalence” seeks to make ferry crossings as “road like” as possible

•IT’S NOT JUST ABOUT PRICE

The Degree of Ferry Impedance

The degree of impedance varies depending on:

•Passage time (a function of distance & speed)

•Frequency

•Hours of operation

•Price

Economic Stimulation

•Traffic generation by reducing ferry impedance can be a powerful economic driver

•Road Equivalence has the potential to revitalise our island economies

•It’s not just (or even mainly) about fares

Future Opportunities

•Modernisation –a more flexible approach

•Offer individual route concessions on the basis of innovation/cost effectiveness

•Reward efficiency gains

•Many routes could be commercially viable

•Open to private sector to provide/operate the “sea-roads”

•Not “Lifeline” ferries: “Marine Highways”

What is most like a road? –A road !

Fixed links reduce or remove ferry impedance

Skye Ferry -Bridge Comparisons:

KEY MESSAGE

•Serving remote communities

•No community -no ferry

•Community First

•Declining community –expanding community ie Skye

•Employment needs

•Business needs

•Social needs

•Ferries a means to an end –not an end in itself

4 March (5th Meeting, 2008 (Session 3)) – Supplementary Oral Evidence

SUPPLEMENTARY WRITTEN EVIDENCE FROM COUNCILLOR LEN SCOULLER, SCOTTISH ISLANDS FEDERATION – 4 MARCH 2008

RET Pilot in the Western Isles

This is welcomed by the S.I.F. but in order to maintain equality and protect the economy of all Scottish Islands, there should be a proportionate reduction in passenger and freight charges on routes to islands not part of the RET pilot. Otherwise an unfair advantage is being handed to the participating islands.

Routes

Recent years have seen a considerable improvement on some routes and frequency of service but much remains to be done to achieve an acceptable standard for many others. I feel that a route review should be initiated, as is formulated in the National Transport Strategy. This would give details of the potential for new routes and would further address the sustainability of a Scottish Ferry Network. This would address shorter, more frequent crossings, viability and sustainability. Also it would focus on the social and economic effects that poor ferry services are having on our island and rural communities.

Frequency

This should also be part of the remit for the review which could look at frequency of service once the routes were settled. For example, that with new routing being devised, ferries may become available for other routes nearby. I quote the example of the Mallaig/Lochboisdale “alternative bid” which if approved would give 30 hours of potential additional sailing time on the M.V Clansman and Lord of the Isles. This would give a better service to Colonsay, Mull, CoIl and Tiree, if they were then used to serve these islands.

Integration

I am aware that C.P.M.R. have lobbied in the E.U. on the issue of “clock face” operations, ie. giving no discretion to operatives. As long as receivers of transport subsidy must be on time on arrival then, integration is impossible since weather dependent ferry services are subject to disruption. A system of sensible integration of essential public transport sy