The Scottish Government

« Previous | Contents | Next »

Listen

Appendix G Ireland Case Study

G1. Ferry Legislation and Licensing

Subsidised ferry services, routes and carrying statistics

G1.1 Ferry access to the 30 inhabited off-shore islands of Ireland is important to the economic and social life of their residents. The Irish Government has a formal policy of promoting the sustainable development of the populated off-shore islands. There are currently 14 subsidised services to islands off the northern and western coasts of Ireland.

G1.2 Subsidies for island ferry services were under the remit of the Islands Transport Act of 1945. The current passenger services have been in place since the 1980s.

G1.3 Since 1997, The Department of Community, Rural and Gaeltacht Affairs has been responsible for providing adequate access to transport services for islanders on an all-year round basis, under the remit of its Statement of Strategy. â'¬2.27 million was spent in 2003 on the provision of ferry and air services to the islands and on assisting current projects.

G1.4 In 2003, the Department of Community, Rural and Gaeltacht Affairs appointed consultants to report on subsidised ferry services provided to eight of these islands: Toraigh (Tory Island), Inishturk, Clare Island, Inis Mór, Inis Meáin, Inis Oírr, Inishboffin, and Oileán Cléire (Cape Clear). Due to data constraints, the report concentrates on these particular routes.

Operators

G1.5 The contracted services on the 14 routes are operated by private shipping companies.

G1.6 The details of the contracts and carrying statistics of the 8 most populated services are included in Tables G1 to G6.

G1.7 All operators are domestic companies. While some European companies have expressed interests in bidding for the subsidies, none of them submitted a tender.

Legislation

Cabotage
G1.8 Ireland has no restrictions on cabotage.

Licencing
G1.9 Passenger boats are licensed under Section 14 of the Merchant Shipping Act, 1992 (No.2. of 1992) and Merchant Shipping (Passenger Boat) Regulations 2002, which came into operation in June 2003. Passenger boats are surveyed by the Marine Survey Office every two years in order to have their licence renewed.

G1.10 The Act covers general safety provisions, standards and requirements concerning construction, machinery and equipment.

G1.11 Before a Passenger Boat Licence is issued, the Marine Survey Office must be satisfied as to the knowledge and ability of a designated person or persons in relation to the operation of a vessel; familiarity with its area of operation; emergency procedures and the use of fire-fighting, life-saving and radio equipment. Only persons actually named on the Licence are permitted to act as skipper of the vessel when carrying passengers.

G1.12 European Commission rules and regulations apply in relation to shipping personnel, construction, and port control.

Vessel Safety
G1.13 The Maritime Safety Directorate ( MSD) is part of the Department of Communications, Marine and Natural Resources and incorporates the Marine Survey Office ( MSO) (including the Marine Radio Affairs Unit ( MRAU)), Maritime Safety Division, Aids to Navigation Section and the Marine Environment Division as well as the safety functions in relation to leisure craft, jet skis and adventure centres.

G1.14 Passenger vessels that carry more than 12 passengers are statutorily required to hold a valid Passenger Vessel Safety Certificate, which certifies that a vessel is fit to operate, subject to any conditions that may be imposed upon it. These are issued annually following surveys conducted by a Marine Surveyor of the Department of Marine Natural Resources and which involve the thorough inspection of a vessel and its equipment as well as the operation of safety standards on board.

Enforcement of license conditions
G1.15 The Garda Siochana is the state agency with the primary responsibility for ensuring compliance with and enforcement of the provisions of the Merchant Shipping Act 1992. The Department of the Marine and Natural Resources, in co-operation with the Garda Siochana, ensures that unlicensed vessels do not operate. These institutions also monitor on an on-going basis to ensure that the vessel is being operated in compliance with the relevant legislation. Operators who are found to be in breach of the terms of their licence are liable to be prosecuted and can face fines, or even imprisonment, if convicted.

G1.16 Subsidised ferry contracts are granted to operators on the condition of compliance with the marine regulations, health and safety rules, and by-laws set by the relevant local authorities.

Ports
G1.17 The Department of Communication, Marine and Natural Resources oversees maritime transport development and port facilities.

G1.18 Commercial port companies operate ports under the Harbours Acts 1996 - 2000. The corporatised ports are statutorily responsible for the management, control and development of the ports as fully-fledged commercial state companies.

G1.19 Some off-shore island port facilities are maintained and managed by the respective local authorities.

G2. Lifeline Services

Bases for Subsidies

G2.1 Ferry access to the 30 inhabited off-shore islands of Ireland is important to the economic and social life of their residents. The Irish Government has a formal policy of promoting the sustainable development of the populated off-shore islands.

G2.2 These islands have populations of around 100 to 1,000. Some of the islands do not have high schools or medical facilities. These economies often rely heavily on tourism.

G2.3 Passenger and cargo services to off-shore islands are subsidised by the Irish Government on the grounds that these services are necessary in order to maintain and enhance the islanders' living standards. The Department of Community, Rural and Gaeltacht Affairs is responsible for providing adequate access to transport services for islanders on an all-year round basis, under the remit of its Statement of Strategy.

G2.4 The regular and guaranteed services are considered to be lifeline services which address the problems of isolation and sense of remoteness, and the consequent medical and other health problems. The services are supposed to "maintain the community identity and the culture associated with it".

G2.5 The subsidised ferry services are believed to generate positive socio-economic impacts. First, they generate local economic activity through local purchases, spending on local contractors, equipment hire, and employment of locals as crew. Second, they bring visitors to the mainland ports of Baltimore and Galway. Lastly, they bring visitors to the islands and support tourism activities. The ferry services also increase the attractiveness of the islands as places to live.

G2.6 Some of the services are tendered as individual routes and others are bundled, e.g. the services to the Aran Islands.

G3. SubsidiSed Services: Operation

Operators

G3.1 The ferry services are, and have been, operated by private shipping companies.

Vessels

G3.2 The Irish Government used to own some of the vessels serving the islands. They would then contract the vessels out to the operators. The last of these Government-owned vessels, one which serves Cape Cleire, will be sold in 2006.

G3.3 The Government believes that having operators own the vessels makes for more efficient operations. Operators now bear the risk and absorb the costs of the vessels, and these costs are reflected in the size of the subsidies.

Services

G3.4 All of the subsidised services carry passengers and some also carry cargo.

G3.5 The current routes have been in place for many years. Departure cities and piers, however, do change to reflect the availability of infrastructure and journey time savings.

G3.6 A recent consultancy report recommended separating passenger and cargo services for two reasons. First, having passenger-only services creates more flexibility where faster routes can be operated out of different ports or on different vessels. Second, some of the island piers are so small that health and safety issues arise when passenger and cargo, e.g. fuel and food, are handled together.

G3.7 Some of the lifeline service contracts include road services on these islands, to and from the ferry ports.

G3.8 Minimum service schedules are set after the Department of Community, Rural and Gaeltacht Affairs consults with the island communities.

G3.9 Some of the operators carry mail and/or refuse. These contracts are negotiated separately with Ad Post or the county councils. These contracts are taken into consideration during the tender process.

Contract Requirements

G3.10 The operators must also meet minimum levels of service. Additional services, however, are provided according to demand.

G3.11 Subsidies are reimbursed on a monthly basis, dependent on the operators' performance. Every month, operators send in details of their receipts, logs and insurance records to the Department. These are then checked, verified and entered into a database before the subsidies are paid out.

G3.12 Tables G1 to G7 summarises the services contract terms, and carrying statistics for the ferry services.

Table G1 Oileán Cléire (Cape Clear): Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Table G2 Toraigh (Tory Island):Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Table G3 Aran Islands: Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Table G4 Inishturk: Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Table G5 Clare Island: Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Table G6 Inishbofin: Contract

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

Fares

G3.13 Subsidised services are subject to fare regulation. Passenger and cargo charges are often capped, with further discounts for island residents.

G3.14 The following table summarises the levels of passenger subsidies on these routes.

Table G7 Fare Subsidies

Source: Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.

G4. Subsidised Services: Financial and Commercial Support

Subsidies

G4.1 The Government pays the difference between the fares that islanders and other passengers pay on the subsidised routes, and reimburse the operators at the end of each month.

G4.2 Financial returns for subsidised ferry operators (profit after interest and tax as percentage of turnover) was between -8% and 27% in 2001/02.

G4.3 Operators submit their fare, revenue and cost projections at the time of tender.

G4.4 While the average return for the operators is around 10%, the Department believes the margin and scale of the services are not large enough to attract foreign operators to bid. Sunk costs, e.g. setting up regional office, relocating personnel, etc., are deemed too high for other European operators to compete in the island ferry market in Ireland.

G4.5 A summary of the subsidies for each contract follows:

Table G8 Current Ferry Subsidies In Ireland

Source: Department of Community, Rural and Gaeltacht Affairs, Ireland. Ports The Department of Community, Rural and Gaeltacht Affairs is investing â'¬37- â'¬40 million to upgrade piers in order to support cargo and passenger handling capacities and safety.

G5. Subsidised Services: The Contract

Structure of Contract

G5.1 The contract is essentially a Service Level Agreement between the Department for Community, Rural and Gaeltacht Affairs and the Operator.

G5.2 The contract governs the level of subsidy to the operator, without the possibility of escalation to reflect rising costs.

G5.3 All contracts have performance indicators built in.

G5.4 A claw-back clause allows the Department to reduce the subsidy payable where the number of contracted sailings is not provided. This is due to change. The new contracts will introduce greater flexibility. Operators will not be penalised for missed sailings that are for reasons outwith their control.

G5.5 Future contracts will include an escalation clause that allows prices to fluctuate according to the consumer price index and fuel prices. The Irish Government is interested in understanding how other countries benchmark fuel prices and adjust for their fluctuations in their PSO contracts.

G5.6 With the exception of services to the Aran Islands, each service is contracted individually. This is intended to minimise the risk of cross-subsidisation.

Contract Duration

G5.7 Passenger services have historically been around 3 years long. In accordance with EU regulations, future contracts will be 5 years in length.

G5.8 The current cargo service contracts are for two year periods. Starting in January 2007, cargo service contracts will be 5 years in length.

G5.9 Operators welcome the longer contracts because they allow them to better recuperate costs and benefit from economies of scale.

G5.10 A contract duration that is too short makes operators unwilling to quote because of the insufficient time to recover the capital cost of the vessel. Too long a contract would encourage monopolistic tendencies and discourage competitiveness.

G5.11 According to the European Commission, five to six year contracts are optimal.

Contract Monitoring

G5.12 A monitoring committee is assigned to each contract. They work out formulae for assigning penalties to reduce remuneration in the event of non-performance.

G5.13 The Department performs random checks on the performance of operators on an on-going basis. Four spot checks per year are carried out with the agreement of the operators.

G5.14 All ferry contractors (contracted after 2004) must provide monthly sailing logs, including details of all sailings and numbers of passengers carried and penalties for shortfalls apply. Providers of services to the Aran Islands currently submit monthly returns to the Department of Community, Rural and Gaeltacht Affairs. Actual deliveries are checked against contracted service levels. Payment is withheld for shortfalls.

G5.15 The Department maintains close liaison with the island development associations and communities. As such, it learns very quickly of any complaints and concerns regarding the ferry services.

Risks

Competition Risks
G5.16 Competition exists on some of the subsidised routes, especially in the summer. It is believed that competition enhances the quality of services provided by the subsidised operators.

G5.17 With respect to the Aran Island air transport services, the Department has introduced a capacity related clause similar to the one in the Council Regulation on PSO, which affects the introduction of competition for two of the three years of the contract.

Cost Risks
G5.18 The is no escalation clause in the current multi-annual contracts. Ferry operators bear the risk of cost increases, including labour, insurance, and fuel.

G5.19 In the future escalation clauses that adjust subsidies based on fuel price benchmarks and the consumer price index will mitigate these risks.

Capital Investment Risks
G5.20 Due to the varying harbours and facilities of the islands, problems of size and draught prohibits all vessels from serving all islands.

G5.21 The eventual upgrade of port facilities implies that any new cargo or passenger tender should be based on a performance specification that would allow for the infrastructure at the time of tender, and allow potential operators to cater for other unsubsidised activities.

G5.22 By selling government-owned vessels, the Irish Government is passing these risks on to the operators, while contributing to the cost through the subsidy. This is believed to be the most efficient arrangement.

Other Risks
G5.23 Officials from the Department conveyed that, in the past, operators on long contracts did not always serve the best interest of the islanders.

G5.24 Furthermore, current tenders are not limited to limited liability companies. The Department then bears the risks of default. The islanders suffer.

G6. The Tendering Process

Invitation

G6.1 None of the islands generate more than 100,000 trips in a year, hence they are not bound by the European Union's procurement procedures according to EEC3577/92. As such, ferry service contracts can be awarded following simple expressions of interest, as opposed to formal tenders.

G6.2 The Department does, however, follow the spirit of the EC directive in ensuring a transparent, competitive and fair bidding processes for the subsidised contracts. This also pre-empts any complaints initiated by the European Commission or operators.

G6.3 In keeping with the spirit of the EC directive, the tender is advertised to as wide an audience as possible, and the European Commission is informed of the award of the contract.

G6.4 The subsidised services are advertised all over Europe through the Official Journal of the European Union. Pre-qualified operators are invited to submit formal tenders.

G6.5 The Department will eventually make everything (tender documents, contracts, etc.) available on the Department website.

G6.6 Ample financial and operational information is requested at the time of tender to evaluate whether operators' subsidy demands are reasonable.

Competition

G6.7 Competition is intense for these subsidised services. A recent two-year contract for cargo services to the Aran Islands generated 13 bids.

G6.8 Public opinion on the islands is that subsidised ferry service operators should be required to employ Irish-speaking personnel to maintain the cultural heritage and languages on the islands. In practice, all subsidised passenger service operators do hire Irish-speaking personnel on the vessels.

G6.9 The tender process in the past was seen to be loose with regard to performance, specification of the vessels, specification of fares and schedules, and evaluation of tenders.

G6.10 In the future, the bundled Aran Islands services will be broken up. Right now, the possibility of cross-subsidisation exists due to the high volume of traffic to Inis Mor. With the unbundled contract, services to Inis Mor may no longer be subsidised.

Award

G6.11 The European Commission is informed of the award of the contract.

G7. EU Maritime Cabotage Rules

G7.1 The subsidised services are not set up as PSOs. As such, they are not subject to the tender procedures outlined in the EC directive EEC3577/92.

G7.2 The primary reason for not classifying the services as PSOs is that the current subsidised services fall below the threshold of 100,000 trips per annum. Council Regulation ( EEC) No 3577/92 interprets that "small islands", where the annual number of passengers carried by sea to and from the island is around 100,000 or fewer, are exempt from a formal tender, where the selection of a suitable operator can be achieved following a simple call for expressions of interest.

G7.3 The Department, however, feels strongly that the rules and procedures that they adopt follow the spirit of the EC directives to ensure transparency and fairness.

G7.4 An example is their intention to un-bundle the services to the Aran Islands to prevent cross-subsidisation.

Sources

http://www.dcmnr.gov.ie/display.asp/pg=387
Ports. http://www.dcmnr.gov.ie/display.asp/pg=1134
Department of Community, Rural and Gaeltacht Affairs. 2004. Review of Certain Subsidised Ferry Services to the Islands, Report and Appendices. Prepared by Malachy Walsh and Partners, 9 March 2004.
Phone interview with Department of Community, Rural and Gaeltacht Affairs. 9 Dec 2004.

« Previous | Contents | Next »