Delivering Lifeline Ferry Services

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FOREWORD

SAFEGUARDING FERRY SERVICES

"It is clear that we must comply with Community law, including the rules on State Aids in the maritime sector. Failure to comply is not an option for the Scottish Executive. However, I am determined to ensure that we have a proper consultation on the implications of meeting the requirements of Community law for all those people and businesses who depend on our lifeline services. We need to involve the communities in this discussion in order to make the most of the opportunity to improve the quality of service on routes provided by CalMac.

There are different options set out in this paper which would let us modernise the services provided while meeting the requirements of EC law. We are seeking views both on these options and other matters that people feel are relevant.

When I met officials of the Commission in March I stressed to them the importance in terms of the economic, social and cultural benefits to the communities served by our lifeline ferry services. The need for reliable and secure services, affordable fares and freight charges are at the heart of this consultation exercise.

The Executive remains committed to delivering public accountability for ferry services provided within Scotland and to developing mechanisms to achieve that. The Executive's commitment is demonstrated by the fact that the resources this Executive has invested in lifeline services are at the highest ever level.

We should take this opportunity to take stock and look for improvements to integrate our lifeline ferry services into wider transport provision and I am keen to ensure that we consider the opportunities for the future which could be opened up by a Highlands and Islands Transport Authority.

I have set a timetable for consultation with the communities served, local authorities, ferry operators, trade unions and other interested parties which will enable full discussion to inform our next steps and I look forward to considering the responses which I hope this exercise will stimulate."

SARAH BOYACK
Minister for Transport and the Environment

CONSULTATION PAPER
FERRY SERVICES IN THE HIGHLANDS AND ISLANDS

Introduction

1. This consultation paper seeks the views of interested parties to assist Ministers of the Scottish Executive in considering the way forward in relation to future delivery of ferry services in the Highlands and Islands. It sets out the background in relation to European law under which tendering of the routes will be required. The consultation seeks views on a number of complex issues including how routes should be grouped, arrangements for ownership of vessels, consultation arrangements and, in the longer term, the content of possible domestic legislation including the role of a future Highlands and Islands authority.

2. In order to help inform debate on the issues covered by the consultation paper, the Department's normal practice is to make available to the public, on request, copies of responses to the paper. The Department will assume therefore that responses can be made publicly available in this way. If respondents indicate that they wish all, or part, of their reply excluded from this arrangement, its confidentiality will be strictly respected.

Background

3. The European Commission has a duty under Article 88(1) of the Treaty to keep under review aids existing in Member States and to propose to the Member States appropriate measures required by the progressive development, or the functioning, of the Common Market. Following the introduction of Community guidelines on State aids to maritime transport, the Commission wrote to Ministers seeking information about the compatibility with Community law of our current arrangements whereby CalMac receives public subsidy to provide Western Isles and Clyde ferry services.

4. To comply with the guidelines, an open public tender will be necessary in all cases where financial compensation is being offered to a ferry operator for Public Service Obligations (PSOs). Other EU Member States are either already well down the road of tendering their subsidised ferry services or are currently bringing forward arrangements to do so. Failure to comply with Community rules could ultimately lead to 'infraction proceedings' by the Commission, which could involve, for example, the cessation of aid to these lifeline services. Non-compliance with the rules is not, therefore, an option.

5. Commission guidelines note that "subsidisation can, in principle, be accepted for Public Service Obligations (PSOs)". The definition of a PSO is set out as:

• "any obligation imposed upon a carrier to ensure the provision of a service satisfying fixed standards of continuity, regularity, capacity and pricing, which standards the carrier would not assume if it were solely considering its economic interest."

6. The guidelines prescribe detailed rules for PSOs relating to tendering requirements and terms of contract. In particular:

• Schemes must be transparent and allow for the development of competition.
• Schemes must give adequate publicity to the call for tender and set out all requirements in a transparent manner to ensure that all Community carriers have had an equal chance to bid.
• Subsidy can then be given but must be directly related to the calculated deficit made by the operator for the service. There should be no over-compensation or cross-subsidy and the system should not be used to support inefficient management and operating methods.
• The duration of the PSO contracts should be limited to a reasonable period (in practice 5 years or less).

7. The Executive concludes that the ferry operations provided by Caledonian MacBrayne to meet the Undertaking of Approved Services between the company and Scottish Ministers are in the nature of PSOs. They must therefore be brought into line with the above principles.

8. The final package of proposals will have to be agreed with the European Commission. However, the paragraphs below set out the policy objectives which the Executive will follow in coming into line with the European law and the options which appear to be available. Views on these options are sought.

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