Caledonian MacBrayne
Good morning. The first item of business is a statement on state aid for Caledonian MacBrayne. The minister will take questions at the end of her statement and therefore there should be no interventions during it.
With your permission Presiding Officer, I would like to make a statement on the Executive's proposals in relation to Caledonian MacBrayne's lifeline ferry services in the Highlands and Islands. The Executive attaches high priority to safeguarding the lifeline ferry services off the west coast of Scotland, upon which those fragile communities rely. Our commitment to the maintenance of these vital services has been demonstrated by making available for 1999-2000 the highest ever deficit grant, of £14.8 million. That helps to keep fares as low as possible.
The European Commission has a duty under article 88.1 of the EC treaty to keep aids in member states under review. Following the introduction of Community guidelines on state aids to maritime transport, the Commission wrote to the Executive last year seeking information as to compatibility with Community law of the current arrangements for Caledonian MacBrayne ferry services.
It might be helpful if I explain briefly what the relevant rules about state aids are. Article 87.1 of the EC treaty provides that, in general, state aids are deemed to be incompatible with the common market if they distort, or threaten to distort, competition by favouring certain undertakings and in so far as they affect trade between member states. Such aids require to be notified to the Commission, which has a limited discretion to find that they are compatible. To comply with the state aid rules and the 1992 regulations on maritime transport or cabotage—Council regulation 3577/92—we need to put the services out to competitive tender.
The Community issued guidelines on state aid to maritime transport in 1997. Part 9 of those guidelines provides that, in certain circumstances, aid in respect of operating losses incurred as a direct result of fulfilling certain public service obligations are not considered to be state aid provided that certain conditions are met. Those conditions include: that public tenders are made, that there is adequate publicity and that the contract is awarded on a non-discriminatory basis; that the contract does not involve over-compensation or cross-subsidy, so that the system is not used to support inefficient management and operating costs; and that the duration of such contracts is to be limited to a reasonable period, in general not more than five years.
A public service obligation is defined as an obligation imposed upon carriers to ensure the provision of a service that would otherwise not be economic. Article 4 of Council regulation 3577/92 on maritime transport or cabotage allows a member state, in certain circumstances, to impose a public service obligation as a condition for the provision of cabotage services on shipping companies participating in regular services to, from or between islands. However, it is obliged to do so on a non-discriminatory basis in respect of all Community ship owners. That would be achieved by competitive tendering.
We believe that most Caledonian MacBrayne services are in the nature of public service obligations. Therefore, to be able to continue to provide the services and to comply with the 1992 regulations and the 1997 guidelines, the routes must be put out to tender. That will bring CalMac services into line with the Executive's practice in respect of the northern isles, where tenders are currently being sought for ferry services to Orkney and Shetland. In determining the best way forward for routes operated by CalMac, the issues are complex. They include decisions about how the routes might be tendered, about the ownership of vessels and about service specifications.
Today, I am publishing a consultation paper that sets out the options for tendering. The Executive is seeking views on options and I want to encourage all those with an interest in these vital services to play a part. A number of key issues arise, such as how the routes should be grouped in the tendering exercise.
Tendering the CalMac network as a whole could be regarded as a barrier to competition. It seems likely that a minimum of two or three groups of routes would be necessary to meet requirements for adequate competition. I will seek views on what groupings would be regarded as sensible packages of routes by local communities. Furthermore, local authority ferry services might be affected by these rules. We will consult local authorities on that issue.
There are particular issues in relation to mainland-to-mainland routes, which include Tarbert-Portavadie, Gourock-Dunoon, and the local authority services Gourock-Kilcreggan and the Corran ferry. Although it has been suggested that the cabotage regulations and the state aid guidelines might rule out assistance to such mainland-to-mainland routes, we believe special considerations apply to similar air routes. I intend to make a robust case to the Commission for Scotland's remote mainland ferry services to be brought within the tendering exercise.
In respect of the Gourock-Dunoon route, there is the added issue of a private sector operator close by. However, the CalMac service provides an important component of an integrated transport system for users who do not have access to a car. I therefore intend to make representations to the Commission for a passenger-only service which, I believe, is complementary to the service provided by Western Ferries at present. The Executive undertook to publish Deloitte Touche reports commissioned by the previous Government on options for the Gourock-Dunoon route, and I propose to do so even though some of the argumentation in them has now been overtaken.
There might be significant advantages in keeping the substantial CalMac fleet together to give economies of scale, to secure future investment in ferries and to provide the flexibility of fleet relief vessels. As a result, I will seek views on the proposal to establish a separate vessel-owning company, which could be accountable to the Scottish Executive in that regard.
The Executive values highly CalMac's contribution as a publicly owned operator of lifeline ferry services. We will therefore allow CalMac to bid to continue operating the routes and I will seek the company's views on how best to structure itself to meet the challenge of competitive tendering. Of course, any bids from CalMac would be on a transparent basis, consistent with the principles of fair competition.
For the longer term, we will carefully consider introducing new legislation which would ensure compatibility with EC law. That will provide a significant opportunity to shape a new framework for Scotland's ferry services and I will seek views on the content of that legislation and the role that a possible Highlands and Islands transport authority might play.
It is planned that the first tenders will be placed by spring 2001, which implies that tenders—including detailed service specifications—would require to be invited later this year. Much work has to be done and views on the initial proposals that I am publishing today will require to be submitted by 30 June.
However, I want to assure members of the Executive's absolute commitment to maintaining these vital lifeline ferry services to Scotland's islands and rural communities. I am happy to give the assurance now, that in drawing up service specifications for tendering we will make clear that fares and levels of service will be protected. This challenge is huge; however, I seek the co-operation and assistance of the local communities, CalMac and its work force, local authorities and other interests to work with the Executive to deliver a tendering framework that supports and underpins the economic and social well-being of Highlands and Islands communities and builds on the success of CalMac's present services. We have the opportunity to set the framework for the future delivery of high quality integrated ferry services, and the Executive, CalMac itself and the communities involved must respond positively to the challenge.
This appears to be another case of blaming a European directive rather than the interpretation placed upon it. Has the minister considered the fact that, in Spain, Transmediterrania, which operates services in the Balearics, appears to be a wholly owned state subsidiary; that SeaFrance is wholly owned by SNCF; and that in countries such as the Netherlands, ports are municipally owned, which means that artificial subsidies are given to them and economies made?
The SNP fully accepts paragraph 11 of the minister's statement, which suggests that benefits such as economies of scale and cross-fertilisation of services will come from keeping CalMac tendering together. As a result, will the minister ensure that the tendering process includes the whole service, not part of it? If that does not happen, there will be a cherry-picking of routes and lifeline services will be neutered and damaged.
I welcome Mr MacAskill's support for the Executive's work in persuading the Commission that we must ensure that the tendering process keeps the logic and integrity of CalMac's routes.
Mr MacAskill made specific reference to the operation in Spain and France of state ferry services. There is no compulsion in the European rules and guidelines to privatise the services; we are asked to tender them. That is what Spain and the other countries in Europe have been required to do. I make clear our commitment to retaining CalMac in the public sector, but we need to tender the services.
We need to engage with the European rules and regulations to safeguard our services. I have launched the consultation paper so that members and the communities they represent can be involved in the process. The process is not straightforward; it is very complex. We must persuade the Commission of our case: that our lifeline services are vital to our Highland and rural communities. I will do that when I make the case to the Commission.
We must work with the Commission on tendering and the bundling of routes. I have made it clear that I absolutely do not want to fragment the routes and services and enable cherry-picking. However, that means that we must put a robust case for the integrity of the services.
I have made it clear that we believe that it could be seen as anti-competitive to have one bundle of routes. Spain has given some practical examples of tendering services. It looks as though we will have to consider carefully the possibility of two or three bundles of routes. That is another purpose of the consultation, which must be transparent. We must bring the communities with us; we must also go in line with European obligations and rules.
The issue is complex, but I am absolutely committed to maintaining the services and their integrity.
I thank the minister for her courtesy in giving me a copy of her statement some time in advance of her delivery of it, which allows me to ask a question about what may have been a slip of the tongue or a significant comment. Paragraph 9 of the printed statement says:
"Tendering the CalMac network as a whole would be regarded as a barrier to competition."
However, the minister said that tendering
"could be regarded as a barrier to competition."
It is important to clarify the matter. Is it the Executive's intention to attempt to retain the entire network of services? Does the minister accept the chamber's support for that objective? It is important to attempt to do that.
Paragraph 11 of the statement says:
"There may be significant advantages in keeping the substantial Caledonian MacBrayne fleet together".
Does the minister accept that there almost certainly are significant advantages in preserving the critical mass of the company and its services? Will she give an assurance that that is how the Executive sees the matter? That is important not least to afford capacity to respond in emergencies. We will be happier to support the Executive when it makes representations to the Commission, if it can give assurances on how it sees such things working out.
I thank Mr Tosh for his helpful and positive contribution. I am happy to clarify that point. It could be that the network could be perceived as being anti-competitive if we attempt to tender it in one block—it could be perceived as such, but it is not automatic that it would be perceived in that way. Mr Tosh is right to pick up on the distinction. It is important that we do not make assumptions in starting out on this exercise.
I do not want to underestimate the challenge in persuading the Commission that we should keep the integrity of the routes. That is why I have made it absolutely clear in the consultation paper, which I will issue to members this morning, that we need to consult on the process. My preference is to look at the integrity of the network. We must look closely at the possibility of two or three bundles of routes. In a sense, we would almost be going back to the pre-CalMac days.
I am anxious to bring the communities fully into the discussion. It would not be helpful to go down the route of tendering every single route separately. That would fragment the network, as members have observed. However, I do not underestimate the complexity of the matter. To meet European rules, we cannot just say that we are meeting the rules; we must meet them in practice.
We have to be able to convince the Commission that we have carefully considered the impact and the competitive nature of offering the routes out to tender. I will explore this matter extremely carefully and I welcome the support from both spokespeople who have asked questions so far. This will require a concerted effort, not just in this Parliament but among MEPs, in making representations in Europe.
I thank the minister for her statement. The communities in my constituency will be stunned to hear today's announcement that the European Commission is interfering in the provision of a lifeline shipping service in the western isles. There will be great concern in the affected communities about the future of the routes and about some of the issues that have already been raised.
I ask for the minister's complete assurance that she will do everything possible with the European Commission to ensure that we are still able to support every route with public money and that no route will be ruled out. We still need to support these routes, because none of them is profitable on its own.
The minister said that she will endeavour to ensure that there is no fragmentation of service provision. That must mean that CalMac is still able to operate the routes after completion of the tendering process. I seek her assurance that CalMac will be given every help in ensuring that it remains the supplier of these vital services to our communities.
On the greatest danger of all, I seek the minister's assurance that there will be no cherry-picking of routes. The greatest concern in many communities would be that private shipping companies will come in and take one route out of the system to the detriment of all the others. The integrity of the ferry route system is crucial for the future.
We must welcome the publication—at long last, after three years—of the Deloitte and Touche report. An awful long time has been taken to write it. I ask the minister to honour the commitment she gave in this chamber: that she will come to Dunoon to discuss the report with the local communities as soon as practically possible.
I will try to work through George Lyon's large number of questions as swiftly as possible. I thank George for his support for trying to persuade the Commission of our strong interest in trying to continue the ferry services.
By opting for public service obligations, we need to be able to demonstrate to Europe that we are fully considering the rules and regulations. We have to make strong representations about the absolute necessity of our mainland-to-mainland services. A careful reading of the rules shows that they are not covered by the regulations. We must make the case that, in some of the areas concerned, the alternative to a relatively swift ferry crossing is a round trip of about 50 miles, using small, often single-track, roads. Taking into account economic competitiveness and the economic and social nature of the communities served, the retention of the services is vital. We will have to work hard with the relevant local authorities to make that strong case to Europe and I welcome George Lyon's support on the issue.
We also need to work hard with CalMac, in supporting it in its examination of its structure and in ensuring that it is able to compete and go through the tendering process. We have the experience of the northern isles ferry service in which CalMac, in the guise of Northlink, is part of the tendering process. CalMac therefore has some expertise in tendering. We need to examine carefully the company's structure.
I want to get across strongly the message that this is a complex issue. We need to lobby Europe in the strongest possible terms and make our case about the lifeline nature of the ferry services for the communities they serve. We must link into Europe's strong support for integrated transport and its strong commitment to social inclusion and strong contacts between rural areas, particularly remote ones, and to mainland areas.
On George Lyon's point about the Gourock-Dunoon route, I am happy to announce today the publication of the Deloitte and Touche report, about which several members have regularly asked me questions. I am happy to announce also that I intend to visit Gourock and Dunoon and to see the ferry service there on Monday 1 May. I do not want any more delay with this issue. It is very important that I am involved in discussions with the local communities and with the local council on how we proceed.
We will have to argue our case on the Gourock-Dunoon route strongly. For the sake of integrated transport and ease of access, we need to keep that route open for tourists, commuters and local people. I will make a strong case for that in Europe, but I stress that the outcome is not automatic. I welcome the support that Mr Lyon has given.
Has the European Union done anything to make itself aware of the special circumstances of the Highlands and Islands before making its decisions?
The onus is on us to make that case. The guidelines and rules apply to every European country and we have to make representations to the European Community about how we intend to bring our services into line. We have had fruitful discussions with other European countries and take their experiences seriously.
The issue is difficult and complex, but we can learn from the experiences of Spain and Denmark. I have spoken with the Danish transport minister and discussed issues such as the way Denmark has structured its tendering process, the length of the tendering process and the legislation that it has in place. The Spanish example weighs heavily on my mind. When Spain put its services out to tender, it advertised in the Official Journal of the European Communities on 23 December, requesting tenders by 31 December of the same year. Europe was not impressed by that. We need to acknowledge what has happened elsewhere while making the best possible case for our own special circumstances.
Despite the minister's assurances, will she concede that she is announcing the potential break-up of the Caledonian MacBrayne network? Will she answer the question about the potential for cherry-picking by private operators on the more lucrative routes?
Paragraph 15 of the minister's statement says that
"fares and levels of service will be protected".
If that is the case, and if the publicly owned Caledonian MacBrayne is left with the routes that need greater subsidy, there are only two ways in which the increased subsidy will be covered: more money from the public purse or an increase in fares. Which one will it be?
We do not want our ferry services to be broken up. I have set out the options in our consultation paper explicitly and I have been clear about the difficulty of persuading the European Commission to let us tender all our routes in one bundle. We must consider carefully the option of having two or three bundles of routes. I do not think that that would lead to the break-up of the network and I stress that I believe that we need to protect the integrity of the services.
I encourage members to read the document. It is clear that tendering each route separately would not give us the benefits of an economy of scale, would not be good for competition and would make no sense in terms of ensuring the integrity of the service. I am resolutely against the cherry-picking of those services. I will be happy to answer further questions in the light of what is said in the document. We must make it clear that we have to maintain the integrity of services while meeting the European Commission's regulations. We must consider the experiences of Spain and Denmark.
With regard to the point about paragraph 15, I am making a clear commitment on fares and service specifications. Our experience of the northern isles ferry service tendering process is that, in putting out a contract for tender, we would make clear the specifications for the route, the quality of service required and the fares.
The point that I shall make strongly to the Commission is that by opting for a small number of route bundles, we can maximise value for money and keep the subsidies at a reasonable level. We must do that to persuade the European Commission of the appropriateness of our proposals. The consultation exercise will ensure that the trade unions, CalMac and the local authorities and communities are fully involved in a transparent process and that we will move forward together. That is the lead that I am giving today, with the publication of our consultation document.
The move to put CalMac services out to tender should cause great anxiety in the communities that use them, especially because of speculation about privatisation and increased fares. It is easy for rumours to start, which can stir up fears. Will those communities be involved at grass-roots level in the consultation? For example, will the consultation document be made available on CalMac ferries and in ferry terminals, and will there be public meetings to explain in detail what is happening?
The point about anxiety and the circulation of information is absolutely critical. That is why it is important that I do not simply introduce a set of proposals, but that those proposals, the options that we have in front of us and the process that we must go through are transparent. I want the communities to be reassured of the levels of fares and the subsidies.
A couple of years ago, the Scottish Office undertook research into the lifeline nature of the services and the sensitivities of our island communities, in particular, to CalMac fares. We know well the fragile economic nature of those communities. In Alasdair Morrison's region, the western isles, the levels of unemployment—particularly of long-term unemployment—mean that communities rely on the services. The fares that are charged are critical, which is why I was happy to reassure Duncan Hamilton that, in tendering the services, fares and the current levels of service are factors on which we can give a commitment today.
I know that there will be anxiety. The best way in which to dispel it is to be open and honest, to explain to people the complex nature of the proposals and to reassure them that we are working with other European countries and doing our utmost to bring our services and subsidies into line with European rules and regulations and to convince the European Community that there are specific circumstances and experiences in Scotland that must be taken on board. However, the onus is on us, not on the European Community, to undertake that work, which is why I hope to enlist the support of all members in the process.
I would like to pursue the point the minister made in response to Duncan Hamilton's question. In the northern isles, when the tender period is too short, particular difficulties are created for providing new ships. Will that be a problem for CalMac? Is the minister aware of arguments that she can put to the European Commission to try to extend the length of the tender period? Companies that are considering tendering may face problems in the provision of new ships.
That is an extremely pertinent point. Spain had a 22-year contract with Transmet, its ferry service operator, but the Commission made it clear that it would not accept contracts of that length. However, anyone who knows anything about ferries and boats knows that the cost of a boat cannot be repaid within five years. If we are to meet the safety of life at sea—or SOLAS—regulations and tackle some of the most challenging sea conditions—particularly up the west coast of Scotland—we must ensure that we have the right kind of vessels. We have had that discussion in relation to the northern isles ferry service and we know just how difficult it can be to achieve.
The consultation paper makes clear that there are ways in which we can address cost issues and link the cost of subsidy into the tendering process. I do not underestimate the difficulty of that and I accept that the five-year limit that the Commission has set does not make our task easy. That is an issue that Denmark and Spain have tried to take up with the Commission. There are other, similar, issues. We must make the best case we can to the Commission. I have set out our views on the length of tender in the consultation document.
Communities' concern about this development has rightly been mentioned. I am sure that that concern is reflected among the Caledonian MacBrayne work force. They will be anxious about its implications for them.
Given the imposition of competitive tendering by the European Union and the time scale announced today, is the minister aware of the importance of maintaining the morale of the work force and of involving and consulting them and the trade unions that represent them throughout the process? The detailed specifications that affect fares and services also affect the work force's livelihood and conditions of service.
I am well aware of that point. In a sense, the consultation process that we start today includes not only CalMac and the local authorities, but relates to the work force and the communities of which the work force is a vital part. I do not wish to separate out those two issues.
The jobs provided by Cal Mac are critical, skilled jobs in our most remote communities. I know how important they are. The morale of the work force is also important, which is why I am happy to talk to the work force, to CalMac and to the local authorities to ensure that they understand the process we are about to enter. I am also happy to reassure them that we are making the most robust and best possible case to Europe to ensure that we can continue our subsidies and the operation of these lifeline ferry services.
I apologise to those members whom I have been unable to call, but I must protect the time available for the main debate.