SCOTTISH EXECUTIVE

Final Report: Options for the Ferry Services Between Gourock and Dunoon

8.10 Option F : closure of the McInroy's Point/Hunter's Quay service

Under Option F, the McInroy's Point/Hunter's Quay operation ceases, leaving the Gourock/Dunoon operator as the only service provider.

This could be a stable competitive solution. The market would remain contestable, with other operators able in principle to enter. However, given the size of the market and the limitations in places on total revenues, it might not in practice offer sufficient attractions to induce a new player to attack the established operator, provided that operator was efficient and kept tariffs down.

Under this option, we make the following assumptions:

the market contracts by 10% compared to the status quo to reflect a loss of demand resulting from lesser choice available to travellers, as under Option D;
non-tariff revenues of the surviving operator increase to Ł0.25 million per annum., as under Option E;
the surviving operator has the confidence to invest in new operating capacity and expends Ł11.4 million on three new vessels, more than under Option E,
the surviving operator must invest fully in Dunoon Pier to allow its new ships to dock;
by investing in new ships, the surviving operator is able to cut operating costs compared to the status quo to levels similar to those achieved under the PFI option: with direct ship costs representing 55% of tariff revenues, indirect ship costs 10% of tariff revenues, direct shore costs 15% of tariff revenues and indirect shore costs 10% of tariff revenues.

The surviving operator is able to earn an operating surplus of approximately Ł0.7 million a year. However, this is insufficient to enable it to afford three new ships and a full refurbishment of Dunoon Pier. The NPV is minus Ł4.6 million, excluding any premium which might have to be paid to the McInroy's Point/ Hunter's Quay operator to leave the field open. This would probably be significant.

Gourock-Dunoon

	Year
	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15 et seq
Gourock/Dunoon Service Operator	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000
Revenues
Tariff revenues	3,798	3,885	3,97	066	4,107	4,148	4,190	4,232	4,274	4,317	4,360	4,403	4,447	4,492	4,537	4,582
Non-tariff revenues	250	250	250	250	250	250	250	250	250	250	250	250	250	250	250	250
Sub-total, operating revenues:	4,048	4,135	4,225	4,316	4,357	4,398	4,440	4,482	4,524	-4,567	4,610	4,653	4,697	4,742	4,787	4,832
Costs
Direct ship costs	2,089	2,137	2,186	2,237	2,259	2,282	2,304	2,327	2,351	2,374	2,398	2,422	2,446	2,471	2,495	2,520
Indirect ship costs	380	389	397	407	411	415	419	423	427	432	436	440	445	449	454	458
Direct shore costs	570	583	596	610	616	622	628	635	641	647	654	661	667	674	681	687
Indirect shore costs	380	389	397	407	411	415	419	423	427	432	436	440	445	449	454	458
Sub-total, operating costs:	3,418	3,497	3,577	3,660	3,696	3,733	3,771	3,808	3,847	3,885	3,924	3,963	4,003	4,043	4,083	4,124
Operating surplus (deficit)	630	639	647	657	661	665	669	673	677	682	686	690	695	699	704	708
Investment Profile
Ships
Overhaul of existing vessels
Purchase of new vessels	11,400
Decommissioning of vessels
Sale proceeds from surplus vessels
Sub-total, ships:	11,400	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Liters
Gourock- Linkspans	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Gourock - Terminals	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Gourock - Breakwaters	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Sub-total, Gourock Pier:-	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Dunoon - Linkspans	600	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Dunoon - Terminals	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Dunoon - Breakwaters	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Sub-total, Dunoon Pier:	600	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total investment requirements	12,000	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total cashflow	-11,370	639	647	657	661	665	669	673	677	682	686	690	695	699	704	708
Discount rate	6%
Net Present Value	(Ł4,572)

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