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Chamber and committees

Meeting date: Thursday, May 24, 2018

Meeting of the Parliament 24 May 2018

Agenda: General Question Time, First Minister’s Question Time, Scotland’s Gypsy Traveller Community, Ferry Services (Northern Isles), Draft Revised National Outcomes, Parliamentary Bureau Motions, Decision Time


Ferry Services (Northern Isles)

Good afternoon. We continue with the next item of business, which is a statement by Humza Yousaf on procuring ferry services for the northern isles. The minister will take questions at the end of his statement.


On 2 February 2017, I announced a policy review of the future approach to be taken to the procurement of the Scottish Government’s publicly funded lifeline ferry services. I followed up that announcement on 20 December 2017 by publishing an interim report setting out the emerging findings of the policy review. The interim report confirmed that a direct award to a Teckal-compliant in-house operator under the procurement regime would be compatible with the maritime cabotage regulation, subject to further consideration of how we will in practice satisfy the Teckal control test, which we consider to be very much achievable.

The report also confirmed the need to satisfy the state-aid rules, particularly the four Altmark criteria. In so doing, the report set out our plans to continue our positive engagement with the European Commission in order to build a case to satisfy those rules. We remain fully committed to building that case, and we aim to achieve that in advance of the existing contract for the Clyde and Hebrides ferry services ending in September 2024. In the meantime, the Clyde and Hebrides ferry services will continue to operate under full public ownership and control under the terms of the existing contract.

The interim report also stated that the decision on the future approach to the procurement of the Northern Isles ferry services would be taken in the spring of 2018. I said that I would engage further with the northern isles communities and key business stakeholders before making that decision. I also said that I would consider the progress that had been made through our continued engagement with the European Commission on our ability to build a case that would satisfy the state-aid rules in the event of a direct award to a Teckal-compliant in-house operator.

I have since written to local community representatives and business stakeholder groups and met with them on my recent visit to Orkney and Shetland on 27 April. That recent engagement has led me to conclude that there is not the same strength of feeling for making a direct award to an in-house operator as that which exists across the Clyde and Hebrides communities. In fact, some concerns about doing so have been raised from many quarters, particularly the seafood industry in Shetland.

Most northern isles community representatives are of the view that the tendering of the existing contract has delivered benefits and improvements to the ferry services, and are keen to ensure that the level and quality of service that is provided in the future is fully aligned with the communities’ needs and projected growth in the islands’ economy. Although a minority of local community representatives and key business stakeholders were generally agnostic about the process for procuring the ferry services, the majority expressed a strong preference for the next northern isles ferry services contract to be tendered.

On 24 January, I wrote to the European Commission about building a case for a Teckal-compliant direct award under the state-aid rules. I informed the Commission of the emerging findings from our policy review and proposed that our respective officials meet to discuss and agree the key principles that would form the basis of a case to satisfy the four Altmark criteria. The Commission’s response reiterated its position that it would be significantly challenging to meet the fourth Altmark criterion. The fourth criterion requires that, in the absence of a public tender, the in-house operating company must constitute a typical and well-run undertaking in line with market conditions.

The Commission’s response, a copy of which I shall place in the Parliament’s information centre, also introduced a new dimension—one that we will also have to take account of in our work to satisfy all four Altmark criteria in the future. The Commission referenced the judgment in the European Court of Justice on 1 March 2017 on what is generally known as the Corsica Ferries case. The Commission’s interpretation of that judgment is that it confirms the validity of the three-step test of manifest error that is used by the Commission to define a public service obligation in the case of services of general economic interest. In layman’s terms, it is perhaps easier for me to quote the Commission’s response. The Commission stated that

“where the Member State has the choice between a public service obligation scheme open to all operators and a public service delegation entrusted to one or few operators only, it must opt for the solution that will least distort the freedoms necessary to the good functioning of the internal market. These considerations, and the need to demonstrate the existence of a market failure, would also be relevant in the case of a planned direct award to an in-house operator of the maritime transport services to the Scottish Islands.”

We therefore need to give further detailed consideration to the Commission’s response. That will most certainly lead to more protracted and complex discussions with the Commission before we can reach a definitive position on whether it would be possible to make a direct award that satisfies the state-aid rules. However, that does not change my intention to do so. We will continue to build our case for making a direct award to an in-house operator that satisfies the state-aid rules, certainly well in advance of the existing Clyde and Hebrides contract ending in 2024.

I have always been clear that the views of local communities and key business stakeholders will be central to any decision on the future approach to the procurement of our northern isles ferry services. I have taken full cognisance of the views that were expressed to me during my recent visit to the northern isles, and I have given very careful consideration to the recent correspondence from the European Commission.

I have also considered the importance of maintaining and securing services to the northern isles. The Government had previously secured an 18-month extension—which is the limit of the extension that we are able to give without taking action—to the northern isles contract. That makes it imperative that a decision is taken now and it prevents me from waiting for the work on a direct award to be completed, given its complexity.

For those reasons, I have concluded that the next northern isles ferry services contract should be tendered as soon as practicably possible. Taking the decision now to tender the northern isles ferry services will provide sufficient time to complete what will be a high-value and complex procurement before the current extended contract expires in autumn 2019. Delaying the decision would serve only to put the continued delivery of the ferry services at risk, which is something that I am simply not prepared to do.

In reaching that decision, I emphasise the Government’s record in supporting and investing in the northern isles ferry services. We recently purchased the three Ropax vessels from the Royal Bank of Scotland. The savings to be generated from the purchase of those vessels will assist us in delivering on our promises and commitments to introduce the road equivalent tariff to the northern isles.

We also recently published a comprehensive transport appraisal study in line with the Scottish transport appraisal guidance. The study identifies a number of options that will help to inform the specifications for the next northern isles contract. The study also recognises the additional demand and capacity pressures that might arise as a result of the introduction of lower fares on the northern isles routes.

We will continue to engage with local community and key business stakeholders on those issues during the development of the specifications for the next NIFS contract. In doing so, we will ensure that the tender delivers a ferry service that provides the required level of services to support the islands’ future social and economic prosperity.

I also take this opportunity to emphasise that the decision to tender the next northern isles ferry services contract does not change my position on the future approach to be taken to the procurement of our ferry services. As mentioned previously, I remain fully committed to building a case for a direct award to an in-house operator that would satisfy the state-aid rules before the existing Clyde and Hebrides ferry services contract ends in October 2024. That commitment extends to subsequent contracts for our other lifeline ferry services, including future northern isles contracts.

I should also add that the Government’s future approach to public sector ownership and control of key transport services, including building the case for a Teckal-compliant direct award to an in-house operator, is reflected in our commitment to enable a public sector operator to bid for the next ScotRail contract.

My statement today ensures the continued protection and delivery of vital lifeline ferry services to the Shetland and Orkney island communities that rely on them for their social and economic sustainability, and it continues our commitment to secure the direct award of ferry services on the west coast in the future. It also fulfils my commitment to act in line with community considerations in the northern isles. That is a responsibility that I and this Government take very seriously. The decision to tender the next northern isles ferry services contract enables me to fulfil that responsibility and demonstrates this Government’s continued support for and investment in those ferry services.

I thank the transport minister for advance sight of his statement. I also thank him for seeing sense in this matter. After repeated calls from members on the Conservative benches for him to listen to local communities and to do the right thing, his confirmation that the northern isles ferry services contract will go to tender is a welcome announcement.

The tender process—not just in the northern isles, but across Scotland—offers a transparent procurement model that allows for healthy and open competition, ensures value for money, encourages growth and innovation on the route concerned and, frankly, keeps incumbents on their toes. The reason why the Government has failed to convince the European Union that state intervention would not distort the market and why it could not demonstrate market failure is that Government intervention would distort the free market and there has been no collapse of the market. The only thing that is preventing the minister from pursuing his agenda is the EU and a legal block. Presumably, if he could take the contract in-house, he would, in the face of opposition, do so.

If service users in Orkney and Shetland have little appetite for a nationalised and centrally controlled service, why does the minister insist on dogmatically pursuing that agenda? He says that he is “building a case” for the “direct award” of the contract. How much civil service time and energy is going into and has been wasted on that work? How much legal resource has gone, and will continue to go, into that obsession?

Will the minister confirm that the tender process will be open and transparent? When does he expect the tender exercise to open? How long will the process take? Will he give Parliament a commitment today to take the nationalisation agenda off the table once and for all?

My approach is not dogmatic but principled. This Government’s principle is that we prefer to award lifeline services directly to an in-house operator. Regrettably, I cannot do that because, as I outlined in my statement, by and large, the European Commission still needs to be satisfied and convinced, and that is a complex discussion and negotiation.

I say gently to the Conservative member that his party is not dogmatically opposed to that approach either. Last week, his Secretary of State for Transport took the east coast main line service in-house because it was practical and pragmatic to do so.

That was a failed market, which is completely different.

The member is right to say that it was a failure of the private market.

This is not about dogmatism; it is about my principle, and this Government’s ideology, that it is better to award the contract in-house. However, we also said that we would take the community’s views into account. I did that. I travelled to Orkney and Shetland and listened to business owners, particularly in the seafood industry. As I have said, I think that they will be very pleased with the decision that we have come to today. However, that decision does not preclude me from directly awarding a future NIFS contract, if we are able to satisfy Teckal and state-aid rules.

I give the member an absolute guarantee that the tender process will be open and transparent. I also promise him that we will engage on the specifications in an open manner. On the milestones and when the invitation to tender will be ready and so on, I will make sure that he is kept up to date.

I, too, thank the transport minister for advance sight of his statement. It is clear that the basic principle that public transport is an essential public service and not an opportunity for private profiteering is not shared by the Scottish National Party. We again have promises of jam sometime in the future.

Last week, just before the United Kingdom Government confirmed that it would operate the east coast main line route through an operator of last resort approach, the transport minister said that he was “agnostic” about the contract returning to public hands and stated that he does not have a preference for either public ownership or private ownership.

It is clear today that a pattern is developing when it comes to this Government’s commitment to public ownership: it simply does not have one in practice. Having dragged his heels and today ruled out bringing the northern isles ferry services under public control, will the minister guarantee a level playing field during the tender process? Will he ensure that there will be a strong public sector bid? Furthermore, unlike what happened with the previous bid from CalMac Ferries, will the process be open?

I will make a couple of points of clarification. First, when it comes to a public sector bid for the railways, which is where Colin Smyth started his question, I remind him that it was the SNP Government that changed the law so that a public sector bid can come forward. That was not done by Labour Party during the years and years that it was in power—the Labour Party did hee-haw on the matter; Labour put all its efforts into blocking the full devolution of railway powers to the Scottish Parliament. I will not take any lectures from Colin Smyth on our railway powers—[Interruption.]

Mr Smyth, please be quiet.

Secondly, I remind Mr Smyth that when Labour was in power, it also tendered ferry contracts—on the west coast. He is also extremely out of step with the communities in Orkney and Shetland. I do not know whether he has travelled to Orkney and Shetland in his political capacity. I suspect that he has not, because had he done so he would have heard directly from the communities, the business owners, the community councils and the local authorities themselves about what they do not want.

I agree that those are not the only considerations. The other consideration for us to take is whether we can satisfy the European Commission. I am not prepared to put the service at risk simply because the Labour Party wants me to do so. I do not rule out directly awarding the contract as something that we could do in the future, if we satisfy Teckal and state-aid rules. If the Labour Party had any sense, it would not put the northern isles ferry services at risk either.

I remind members to ask their question and then listen to the answer. It is not a conversation.

I for one think that the minister is doing an excellent job. [Interruption.] I welcome the minister’s statement. The SNP Government has a strong record in supporting Scotland’s ferries and the communities that depend on them. Could the excellent minister set out just how much the Government has invested in supporting ferries in Scotland?

My friend is as kind as he is wise.

Richard Lyle raises an important point. We have invested heavily in our lifeline ferry services. We have invested £1 billion in ferry contracts since 2007. On top of that, we have cut fares for the west coast, which has led to a real boom in the island economies. We are looking to do the same in Orkney and Shetland later this summer. We have made progress in tackling underinvestment in ships. We have added eight new ferries, at a cost of £118 million to the Government. We know that Ferguson’s is also building two 100-metre, dual-fuel ferries, which is a contract that is worth £100 million. We have just purchased the three ropax—roll-on/roll-off passenger—vessels, and so on. That is a significant amount of financial support and—dare I say it?—much more investment than that provided by previous Administrations.

I thank the minister for early sight of his statement, which I found extremely disappointing. The Green Party had hoped that the purchase of those vessels would be the first step towards public ownership. The minister has lost a real opportunity to deliver a publicly owned service that operates exclusively in the interests of the islands, rather than for the benefit of private shareholders. It is hardly the response of a progressive Government.

I thank the minister for the letter that he circulated, which alludes to public ownership as being significantly challenging. Is the Government not up for significant challenges? Where does that leave us in relation to the challenges around ScotRail? If that is the direction of travel, it is a very depressing one.

I urge Mr Finnie to read the letter that I gave to the Scottish Parliament information centre and sent to the European Commission. I spoke to Mick Cash from the National Union of Rail, Maritime and Transport Workers earlier today and said to him that it is worth looking at that letter. If I were to do what Mr Finnie asks and directly award the northern isles ferry services contract, I would be putting it up for significant legal challenge, which would put the delivery of the services at risk. That is something that I am not prepared to do.

If the member has a different legal opinion, I would be open to hearing that advice—as I said to the RMT’s Mick Cash. However, we should be under no illusion that what Mr Finnie is asking me to do would put the services at significant risk, which is something I cannot do.

I can give him some reassurance, first, that my officials and I are working hard to ensure that we can directly award the contract for the west coast when it expires in 2024 and, secondly, that our approach does not preclude me from directly awarding a northern isles ferry services contract in the future. I note Mr Finnie’s disappointment, but I hope that that will give him some element of reassurance.

I thank the minister for his statement and I agree with it, because this is the right decision.

I would like the minister to clarify one point. He said that the principle is how the operation is run; my principle is what is in the best interests of the islands. I applaud the decision that he has announced today, but in the future—particularly given that we are about to pass the Islands (Scotland) Bill—I hope that island needs will be uppermost in the mind of the Government, whoever is in government at the time, and that decisions will be taken in that light.

The minister was right to mention the seafood industry. Will he undertake to meet the industry, councils and other players to ensure that the specification on which he is about to embark is right? That is particularly important in the context of whatever decision he is about to make on road equivalent tariff, because capacity is the issue now and will be in the future; it is important to ensure that there is enough capacity for the islanders and for the freight industry, so that the industry can export the goods to the mainland that it needs to export.

I thank Tavish Scott for following Richard Lyle’s lead in thanking me for the important decision that has been made. Everyone knows that where Richard Lyle leads, everyone else follows.

They should follow.

The serious point is that Tavish Scott is absolutely right. I said that we would look at the state aid and Teckal implications of any decision and that we would also consider the best interests of the community and the community’s needs and preferences. I have done that in this case. Such consideration will also be a significant part of decisions on a future NIFS contract—it will not be the only factor, of course, but it will be a significant one.

I can give Tavish Scott an absolute assurance and guarantee that the discussion about the specification will be very open. I am more than happy to take his suggestions on who to meet when I travel to Shetland—and, of course, Liam McArthur’s suggestions about who to meet when we travel to Orkney. When I was last in Shetland, the seafood industry made vital points to me about capacity issues, of which I am very cognisant.

In this Parliament, I have previously given John Finnie an undertaking that the unions will be very much part of the conversation about specifications. I am happy to put that on the record again, too.

I declare an interest as a partner in the business of J Halcro-Johnston and Sons, and I thank the minister for the advance sight of his statement.

I welcome the outcome in the short term, but although the minister claims to have listened to local people it appears that he simply had his hand forced by the European Commission. The minister has made clear that he still wants to take the northern isles ferry service into state control, despite today’s recognition that in the northern isles there is clear local opposition to such an approach. Will the minister continue to push for an outcome that is clearly not what local people want?

If the future of tendering remains under review, will the minister commit to engaging fully, not only with local representatives but directly with the people of Orkney and Shetland, on the future of our lifeline ferry links?

I absolutely will commit to engaging fully. I will go back over my notes, but I am not sure that I received representation from Jamie Halcro Johnston on this point, although I appreciate his making it in the chamber. I have engaged fully with communities and business leaders in Orkney and Shetland. It would be fair of anyone who represents the islands to say that I have been up there to talk to people and that I have listened to what people had to say.

There are two factors in my decision. One is the community interest and community needs and preferences; the other is very much the European Commission. When it comes to a future NIFS contract, I can give the member an absolute assurance that I will listen to what the community has to say; where we are with Brexit and the state-aid rules and so on by the time of the next contract will also be part of the consideration.

This Government has said that it will listen to the communities of the northern isles, and today’s decision clearly demonstrates that we are very much listening to what those communities have to say.

There are still eight more questions, which I would like to get in.

In view of the importance of the £0.5 billion seafood industry, which is important to members from the northern isles and members from north-east Scotland, will the minister take account of interests at the other end of the ferry line, in the north-east? Those interests depend on the link and indeed are working to ensure friction-free access to the European Union for our high-value seafood, because it will be no good landing the seafood in Scotland if we cannot sell it in Europe—and the Tories are putting that at risk.

The member is absolutely right to raise that point. When it comes to the specification, I will of course also engage with communities in the north east.

Conservative members are standing up one after the other and demanding that we listen to the interests of the communities, but the biggest threat to our seafood industry is the Brexit shambles, and that decision was not taken by the Scottish Parliament or the people of Scotland.

The decision is disappointing, especially when councils are asking for help with their inter-island ferry routes. Surely consideration should have been given to building economies of scale with all those services and that should have been done before this short-sighted decision was made.

I am really disappointed by Rhoda Grant’s remarks. It is obvious that she has not spoken to the local authorities in either Orkney or Shetland. I spoke to both leaders before coming into Parliament and they agreed with the Government’s position. Rhoda Grant needs to get out there, meet the communities and engage with them and local authorities. I have done that and she has not.

The Cabinet Secretary for Finance and the Constitution is rightly reminding me that the Labour Party voted against the lifeline that we provided for internal ferries. They would have had hee-haw, zilch and nada if Rhoda Grant was in charge. We are not only listening; we are supporting lifeline services in Orkney and Shetland.

I welcome the minister’s commitment to building a case for an in-house operator, and he spoke about the review in his statement. How is the review looking at options for achieving a competitive tender in a secure, sustainable and affordable way that gives long-term confidence to the ferry users, the communities and the employees?

The way to do that is by having open engagement with stakeholders across the board. The member is right to mention all those sectors of society, be it communities, businesses, unions, employers or others. We will engage with them all in an open way.

When it comes to the specifications, we will be under the obvious constraints but we will seek to be as flexible as possible and make our engagement as wide as possible.

It is interesting to be talking about ferries with the minister today, fewer than eight days since he addressed the Rural Economy and Connectivity Committee on many issues to do with ferries but not this particular subject.

Now that Caledonian Maritime Assets Ltd owns the ferry and CalMac will be encouraged to tender, if CalMac is unsuccessful will the existing ferries remain on the northern isles routes?

On the point about the committee, I am not in charge of the questions that members ask; I simply answer the questions that I am asked by committees.

On the question about CalMac, I can give the member an absolute assurance. We have to ensure that we have separation between CalMac, which is owned by the Scottish Government as a majority shareholder, and the procurement process. We have shown how we can achieve that separation with our Clyde and Hebrides routes. The intention behind securing those vessels was to secure the future of the northern isles services.

To return to Tavish Scott’s question, which was very fair, the expectation of the islanders is for us to look at how we increase that capacity when possible.

The minister has partly touched on this point, but could he explain further what risk there might be to community services if we were to push forward with a direct award without first satisfying ourselves and the European Commission that such an award would be lawful under Teckel and the state-aid rules?

That is an important point. Some members have said that we should just go ahead with it. However, if we were not satisfied legally on the Teckel and the state-aid side, particularly under the four Altmark criteria, we would be going against legal advice, which a minister cannot do, and we would be putting that service at risk. If that service was challenged by a private operator, we would not have a leg to stand on. The delivery of that service would then be at risk, and the same members would want to haul me in front of the Parliament to ask me why on earth I took such a legal risk in the first place. We are doing the legally prudent thing, as well as progressing with the tender that will secure the services in the long term.

As the minister knows, there are people working on the existing contract who are not covered by trade union collective bargaining agreements. He also knows that seafarers on some of the vessels that are chartered to deliver those services have not been covered by minimum pay and employment legislation. When he consults the trade unions, as he has said he will do, will he undertake to ensure that all jobs on those services in the future will be covered by those protections?

I give that assurance again on union engagement. On the issue of minimum pay and the minimum wage, Lewis Macdonald knows that the matter is reserved to the UK Government and we should push collectively for that. It was my intervention—I know that Lewis Macdonald took an interest in the issue—that managed to negotiate with Seatruck Ferries so that we got those vessels from the northern isles here, and so that Serco paid above the minimum wage. On what we can do in the contract for fair work and fair pay, of course we will explore what is in our gift. My point is simply that the law on that remains reserved to the UK Government. I would be happy to work with any member of this Parliament to try to get the UK Government to change tack and see sense.

There are always challenges with regard to keeping ferry fleets up to date. What is the Scottish Government doing to ensure the future provision of suitable vessels for the northern isles?

I have touched on that matter, so I will be very brief. The future of the three ropax vessels that serve the northern isles has been secured. The deal was agreed for CMAL to purchase the vessels outright with loan funding from the Scottish Government. MV Hamnavoe, MV Hrossey and MV Hjaltland, which were previously leased from the Royal Bank of Scotland, are now owned by CMAL on behalf of the Scottish Government. CMAL will then charter the vessels to the ferry operator on a bareboat basis. The specification for the tender will set out the vessel requirement for the transport of passengers, cars and freight for the duration of the next contract.

I, too, welcome the statement and the decision to tender the services. I encourage the minister to take full cognisance of the views that were expressed during the recent visit to Orkney and Shetland, not just now but in future decisions.

The minister may be aware of the concerns that I have already raised about the previous tender process and the lack of transparency. As well as taking on the meeting that was suggested by Tavish Scott, will he ensure that there is on-going engagement with the councils and with key stakeholders as the tender process continues, to ensure that what emerges at the end of the process does indeed meet the needs of both communities?

Yes I will, and I will have a conversation with Liam McArthur and Tavish Scott to ensure that they feel that we are engaging with all the right people and the right community organisations and business leaders. This should be an open engagement. I should, of course, say that we need to press the button on this immediately, because we know that the contract expiration date is autumn 2019 and there are a number of milestones to go through in any procurement. The engagement will start in earnest in the summer and I look forward to engagement with the constituency MSPs to make sure that we engage with all the appropriate stakeholders.

Thank you very much. That concludes our statement on the northern isles ferry procurement.