THE USERS' CHARTER DOCUMENTS
This is an analysis of the implications of the "Users' Charter" documents and meetings released to me this month as a consequence of an appeal to the Scottish Information Commissioner. At one level, the documents make interesting reading simply because it is unlikely that the participants would ever have expected any of their discussions to made public, almost certainly not those associated with the meetings and correspondence that took place in 2004 before the Freedom of Information (Scotland) came into law in 2005. Indeed, as I discuss below, it was largely a matter of luck (whether good or bad depends on your perspective) that the existence of the "Users' Charter" meetings was ever discovered in the first place. At another level, the documents raise very serious public interest questions which I deal with below.
It is presumed that the reader is familiar with the basic facts and history associated with the Gourock-Dunoon ferries, which we also describe here as the Clyde crossing. If not, the FSB report authored by Ronnie Smith CA, Captain Sandy Ferguson and me gives relevant description and background. More background information is provided by this compilation from the News Archives of the Dunoon Observer
Together with information previously released and other information in the public domain, the new material released under Freedom of Information provides significant information about the recent background to policy formulation and implementation in the case of the Gourock-Dunoon ferries. At the time of the "Users' Charter" meetings (2004-05), the Executive had indicated they intended to put the CalMac ferry service between Gourock and Dunoon town centres out to tender and promised they were committed to maintaining that service (Minister Nicol Stephen). Instead, the Executive followed the line subsequently set out in the "Users' Charter" meetings where the Minister (Nicol Stephen) said that while the Executive "might still have to go through the tender process" an outcome that led to a "Users' Charter" with Western Ferries was "attractive" and that he would "welcome a Users' Charter".
Since the "Users' Charter" was predicated on Western becoming sole operator of vehicle ferries on the Gourock-Dunoon market, and since Western did not have the vessels to run on the town centre to town centre route (even if they wished to, which they did not) this would mean both an effective Western monopoly of vehicle-carrying in that market, and either no ferry services between the respective town centres, or at best passenger-only.
The Executive were also being warned by their own adviser about the threat of possible legal action from Western Ferries if the Executive pursued a solution which Western Ferries "view as unfavourable". What makes this even more unacceptable is that while it might just about be understandable for a legal adviser with little or no direct knowledge of the Gourock-Dunoon ferries to give such advice, any of the public officials involved in "Users' Charter" with a basic knowledge of the facts should have known that such a legal threat was spurious, yet the discussions were still carried on as if the threat was real.
Since just about any solution which did not involve Western Ferries eventually becoming sole operator of vehicle ferries on the market could be regarded as "unfavourable" to the company, this combined with the Minister's "welcome" for the "attractive" Users' Charter" outcome gave a very clear signal as to what was the Executive's preferred outcome.
Officials from both the Executive and the Council were not merely passive observers of Western's "Users' Charter"(sole operator) proposals, they actively promoted the idea, assisted with its preparation, and encouraged Western to develop the proposal further.
The Council has consistently argued in public that they not only wanted to retain the combined vehicle and passenger service on the town centre to town centre route, they wanted to improve it. In reality, in the tri-partite discussions with the Executive and Western Ferries its officials were making the case for a passenger-only service on that route, including arguing that a combined passenger and vehicle service between Gourock and Dunoon was not likely to be the least cost option (this against all existing evidence that if you wanted to run a passenger service on the route, a combined vehicle and passenger service would considerably reduce any necessary public subsidy).
Subsequent events, including the handling of the so-called Gourock-Dunoon tender, were entirely consistent with a process designed to ensure the outcome favourable to Western, even though such an outcome would be deeply damaging to the public interest
In short, the agenda of the "Users Charter" meetings and the arguments and actions of the Executive and Council participants in these meetings were directly antithetical to the professed intentions of both parties to at least maintain the existing Gourock-Dunoon town centre to town centre service. They were also antithetical to the public interest and served to seriously damage the interests of the taxpayer, the users and the dependent communities.
The documents in question raise major questions and issues involving governance, audit, accountability, and possibly legality. Although there is still much information that has not been disclosed and many questions that remain to be answered, together with information that is already in the public domain, they help provide a fairly clear picture of Scottish Executive and Argyll and Bute Council planning for the future of the Clyde crossing over the period 2004-07.
The analysis is split in six sections below: (1) the role of the Executive (2) the role of the Council (3) the role of Western Ferries (4) the role of luck (5) the costs (6) the future.
1. The Role of the Executive
When the then Transport Minister Nicol Stephen announced the funding of the new linkspan at Dunoon Pier, in August 2003, he said "We are committed to maintaining the ferry service from Dunoon to Gourock .... The funding announced today ensures that all options remain and that Dunoon pier will have first class facilities for passengers, cars and other vehicles."
In fact, rather than being committed to maintaining that service, the Executive then engaged in a series of meetings with Western Ferries on the issue of the misnamed "Users' Charter". Western made no secret in public or private of the fact that the "Users' Charter" was predicated on their being sole operator of vehicle ferries Gourock-Dunoon, and indeed they confirmed that when asked in the meeting 9 November 2004, this was accepted by the Executive and indeed promoted by the Council (same meeting). There is no indication that this confirmation made any difference to the attitude of the Executive or the Council, on the contrary they simply turned to dealing with the detail of the Charter document at that point in the meeting. If there had been any doubt in the earlier meetings that the Charter meant Western as sole vehicle ferry operator, a moment's consideration would have confirmed that Western would have had no commercial logic in unilaterally offering any restrictions in their service unless they were to obtain such an outcome, and from the beginning Western made it clear the idea of the Charter was set in the context of "local residents' concern over lack of choice" (19 July 2004). lack of choice (and sole operator) was of course at the heart of the "Users Charter" proposal, which would not have had any commercial or policy logic if it was seen otherwise. Apart from helping create an effective monopoly, this Charter would mean the end of the vehicle-carrying service Gourock-Dunoon town centre to town centre since Western's vessels were slower and did not have adequate space or facilities for foot passengers for what is needed on such a service. And as the Dunoon Observer noted (20 October 2006) "Western have always made it clear that they would not be interested in operating from the CalMac terminal at Gourock". So any discussion with Western Ferries for its "Users' Charter" and status as sole operator of vehicle-carrying not only meant helping create a single operator on the Gourock-Dunoon market, it meant the end of vehicle-carrying on the Gourock-Dunoon town centre to town centre route, and (at best) its replacement with a passenger-only service.
Once Western Ferries had sole operator status, its dominance and control would have made it very difficult or impossible for any firm to enter this market, and indeed the restrictions imposed by previous administrations had already given Western a strongly dominant position in this market.
As I note in my Gourock-Dunoon blog for 19th October 2006, the Executive stated in the Herald newspaper at that time that "The discussions with Western Ferries in 2004 on a possible Users' Charter were not predicated on Western being the sole provider of ferry services". This was simply untrue as the FOI documents confirmed.
The new documents just released note that in one meeting (August 11th 2004), the Minister Nicol Stephen summarised what he saw as Western Ferries position. The record then states:
Bearing in mind that "Users' Charter" effectively meant "Western monopoly", the Minister is signaling to the meeting that finishing up with a Western monopoly would be an "attractive" outcome on the crucial strategic route, even if they "might still have to go through the tender process" to get there. It is not difficult to infer how this would impact on the incentives and motivations of the officials present, even if they had not been the ones who had been briefing him to that effect.
The documents also shed new light on the subsequent process outlined by the same Minister in Parliament in December that year. He said about Gourock-Dunoon
But as the new information released makes clear, the Minister's adviser
had pointed to the Minister just a few weeks earlier (28 September 2004)
that "We also need to bear in mind the threat of possible legal
action from (Western Ferries) if we determine to press ahead with a solution
which they view as unfavourable".
And it was that which drove subsequent actions. A "solution" which Western would view as "unfavourable" would have been a serious and committed search for "other operators to come on to the route". And that never happened. Instead, as has been exhaustively documented in the pages of the Dunoon Observer and elsewhere on my Gourock-Dunoon blog on this website, there then ensued what could only be described as one of the most incompetent and botched efforts imaginable. There was never any danger of the process ending up with a new operator or operators, as quickly became clear to any outside observer, and of course, crucially, Western Ferries. To put it at its simplest, there was absolutely no incentive for Executive Ministers or officials to make this process work.
If it had looked like working, this would not have been an process or outcome which Western would view favourably, and if you believed Western's threats this could trigger legal action and a European Commission investigation.
And if instead the process failed - as it was destined to - then you had someone ready and waiting to blame, a point I deal with in more detail below.
In fact, the irony was that anyone with the most basic knowledge of EC law and the history of what had happened on this route would know that there was never any chance of Western complaining to the European Commission about illegal subsidy to CalMac, despite the threats to that effect that it had made both before and after the December 2004 announcement by the Minister in Parliament. There is no mystery why it has never complained to Brussels formally. Were the Commission to investigate, it would quickly find out that the reason for the massive public subsidy to CalMac on this route was a direct consequence of previous administrations' protection of Western through the frequency restriction on CalMac and the failure to allow CalMac to invest in modern low cost vessels. The subsidy to CalMac was not a cause of unfair competition, it was a consequence of it, and the only beneficiary of such distorted competition was Western Ferries. Western would have been ill-advised to have put its neck in that noose by making a formal complaint to Brussels, and if they had asked their legal advisers, that would have been what they would have been told. To have Western's threat of legal action influence Executive judgment and actions was doubly incompetent to say the least, not only was it acting directly against the public interest, it was totally unnecessary. While it might just be acceptable for a legal adviser with little or no direct knowledge of the Gourock-Dunoon ferries to give advice of the dangers of a possible legal "threat" from Western, any of the public officials involved in "Users' Charter" with a basic knowledge of the facts should have been expected to know that such a legal threat was spurious, yet they still carried on their discussions as if the threat was real.
Further, the new information just released makes clear that rather than just listening passively to Western's monopoly proposal, the Executive was enthusiastically trying to help develop and promote them, with one Executive official, noting 17th August 2007 "I informed Dave that I was going to try and dig out for Gordon's benefit anything from around the office ....that might provide a helpful read across to the proposed tri -partite agreement".
"Dave" was David Duthie of Argyll and Bute Council and "Gordon" was Gordon Ross, MD of Western Ferries. The picture of an Executive official telling Dave he was scrabbling about the office for things to help Gordon in his quest for monopoly control raises (or lowers) matters to a further level. Clearly, there will be many legitimate questions asked about this, but just as framing decisions to avoid legal threat from Western was both against the public interest and unnecessary, so helping Western with its plans for a "Users Charter" was both against the public interest and unnecessary. The new information released indicates that the Minister's adviser argued (September 28, 2004) even if Western won the tender "there would still be value in concluding such (a "Users Charter") agreement since it would give a degree of positive influence over (Western Ferries) operations on its existing route.
A minimal knowledge of economics, strategy - or even plain common sense - would have alerted the officials to the fact that, apart from expressing interest in the tender (and so obtaining inside information and scaring off other bidders), once any danger of third parties coming into this market had been dealt with (and the Executive - as we shall see with Council help - was doing this very effectively), there was absolutely no likelihood of Western being interested in either the tender or the "Users' Charter". As far as the tender was concerned, it did not have the boats for the Calmac route, it did not want to deal with troublesome high cost and low revenue foot passengers, and it certainly did not want to pay berthing and harbour dues at Dunoon Pier - or Gourock Pier -when it could use its own linkspans at Hunters Quay and McInroys Point free of charge. And all this would mean that the town centre to town centre route would be reduced to, at best, passenger-only once Western was sole operator of vehicle ferries, as part of the User Charter bargain. As far as the "Users Charter" is concerned, there is and was no logic in Western tying its hands that way unless there is or was commercial advantage in it, and it now found its commercial advantage was being fully served by the Executive (and as we shall see the Council) deterring interested parties from the market. It is interesting noting in the progress of the meetings and correspondence how as the Executive and the Council became more and more involved in, and enthusiastic about, the idea of the Charter, Western increasingly backed off from details, moving from initially advocating an RPI-based-or-equivalent regime (11th August 2004) to when there "was some discussion as to how fare increases would be handled - maybe an index or a maximum set fare. (Western Ferries) indicated that they didn't want to get into this level of detail at this stage, but that a fares mechanism would be required to generate increases, when necessary" (9 November 2004). By offering the carrot of a Users' Charter but not getting drawn into a commitment, Western was simply pursuing its own commercial logic and interest which any competent policy-maker should have realised.
And it was totally unnecessary for a third reason, because the previous
year the European Commission (COM/2003/0595 final) had issued guidelines
which permitted member states to impose PSOs (public service obligations)
on peninsular routes with the geographical characteristics of Gourock-Dunoon.
PSOs, as the relevant 1992 Martime Cabotage Regulation makes clear, could
be on ports to be served, regularity, continuity, frequency, capacity
to provide the service, fares to be charged and manning of the vessel.
The Executive had (and the new Scottish Government has) the power to control
fares and other aspects of service on all operators on such PSO routes,
there was no need to get Western's; co-operation for this. Indeed, the
2003 EC Communication makes quite clear. "It is not for shipowners
to set public service obligations". The picture of a Scottish
Executive official searching around his office to help Western do exactly
that is hardly one that is consistent with that aspect of EC guidelines
on maritime law, or indeed with good governance.
In fact, the new information shows that only real debate that the Executive seemed to be having with itself at that point was not whether or not the proposed "Users' Charter" was a good thing - that it was, was taken as a given - but whether or not it precluded the need for tendering.
After arguing the case for still concluding a "User Charter" agreement with Western even if tendering, the ministerial adviser (28 September 2004) argued
The adviser is presumably talking about legal challenges. Much of the rest of the discussion (including options and preferred option) are still censored, but we can be sure that it included discussion of political reaction as well as legal.
While the six options and the preferred option detailed by the adviser are still censored, we can be pretty sure from previous discussions and subsequent actions what the preferred option was, or at least included. It was to go ahead with a tender (to avoid adverse political reaction) but to also pursue in tandem the "Users' Charter" (to avoid adverse Western Ferries reaction). We know the first part from the December announcement in Parliament, and we know the second part from the letter to Western Ferries from David Hart of the Scottish Executive in January 2005, after the December 2004 announcement in Parliament. In this letter Hart said;
The FOI documents also show correspondence and meetings on the Users Charter between the Executive and Western Ferries continued into 2005, well after the Executive's December 2004 statement in Parliament to supposedly open up the route to competition. .
That is about as complete picture that we have at the moment of what the Executive was doing over this period, its motivations and intentions. It explains why the Minister indicated that even though the "Executive might still have to go through the tender process" why he felt the outcome that meant a Western Monopoly was "attractive". It explains why the Executive continued to try to engage Western in discussion of their "Users' Charter" / sole operator proposal, even after the December announcement in Parliament when they promised to "open up the opportunity for other operators to come on to the route", but then took actions that were consistent with precisely the opposite objective.
The Executive claimed in their December 2004 announcement that they were responding to community arguments and were proposing a two-stage process in which they were market testing to see if there was interest in running an unsubsidised vehicle-and-passenger ferry with no frequency restrictions on the CalMac route. If that failed, they promised a second stage would be to bring in proposals for a subsidised service on the same route.
In fact, the first stage, the market testing, could and should have been completed in a matter of weeks and in the event of failure the Executive could should have been ready with its fall back proposal for a subsidised service by early in 2005. Instead, as the annals of the Dunoon Observer shows, from the time of the December 2004 then ensued a farrago which has been left for the successor Scottish Government to sort out, and whose sole obvious beneficiary is Western Ferries.
As the reporting in the Dunoon Observer shows, it has been a process charaterised by unnecessary delays, unnecessary restrictions and barriers in the way of third party interest in the route, and spurious reasons for delays and failures until by the May 2007 elections basically all that could be said was that the process was no further forward than it had been in December 2004. Indeed, the process was some stages back with Western now increasing its dominance in the vehicle-carrying market, and with the development of new links at both its terminals in the interim (and the retention of the old ones) which would give it the physical shore-based capacity to deal with all conceivable growth in the vehicle-market on the Clyde crossing for the foreseeable future.
What lies behind all this is incentives. It would not have mattered if any of the officials realised that Western's threats of legal action were never going to result in a formal complaint, if your colleagues, and more importantly the Minister, believed that they would be in trouble with Brussels if they were serious about setting about creating an outcome that Western would see as "unfavourable" to them, then that is going to colour all your actions and decisions. As the information in the released documents show, the incentives and the subsequent work conducted by Executive officials all lay in creating an outcome satisfactory to Western and its commercial interests, and if you start travelling down that road, the only certain end point is a Western monopoly, whether or not you feel you have to go through a tender process to get there. As noted below, the costs of all this were borne by the taxpayer, users and the dependent communities, not to mention the other ferry companies who wasted their company's time and resources taking the Executive's tender proposal seriously.
2. The Role of the Council
The initial tranche of papers provided to me under Freedom of Information in February last year painted a fairly positive picture of the Council's role in the User Charter meetings. They argued the case for the community, and it looked that they were only brought into the discussion because their input was needed for the question of the use of the new linkspan at Dunoon. As the Dunoon Observer had recorded at various times copies had shown, the council had been severely critical of the Executive and the delays in the tendering process, amongst other things.
At the time the Users Charter meetings were taking place, the council
said: "In effect, when the service is put out to tender by the
Scottish Executive, a facility will be available at the pier, which will
maximise the options for tenderers for the provision of a vehicle and
passenger service to and from Cowal through the town centre."
Dunoon Observer, 20 August 2004. Then later the council's transport spokesman
. said: "We support the action taken by the Executive to
retain a vehicle ferry service, but we have lobbied from the outset that
this should be looked upon as an opportunity to enhance the existing service.
"This is a lifeline ferry service and must not be diminished."
Dunoon Observer, 10 December 2004.
Later in the Dunoon Observer 28th July 2006, one councillor said "The council had made it crystal clear what it considered to be a basic requirement for the service in line with the aspiration for a 'Gateway' role for Dunoon. This foresaw a frequent town centre to town centre service for both passenger and vehicle traffic." and another councillor agreed, "It's our wish to see an integrated vehicle and passenger service run from town centre to town centre," he said. At one point in the tender saga, a councillor said the tender news was "good news providing that it leads to an improved vehicle and passenger service between the town centres of Dunoon and Gourock." (Dunoon Observer, 24th August 2006 and later another councillor statement was "Our position is clear - we want a centre to centre vehicle and passenger service." (Dunoon Observer, 15th December 2006)
I had come to the conclusion that the Council had been acting wholeheartedly with these objectives in mind, and said so in the Dunoon Observer just before the elections in May.
What the new information released under FOI reveal is the opposite picture and indeed completely negates the Councillors' statements. First I will let the Council - or the Council officials - speak for themselves from the November 9 2004 Meeting between the Executive, the Council, and Western Ferries.
Rather than promoting the principle of a vehicle and passenger service from the town centre to town centre as the Councillors claimed had been the Council's position, the Council - or at least the Council representative(s) in the meeting - were actively subverting the case for it. When the Council "accepted" that it was an "incorrect assumption" that a combined passenger and vehicle service would be "the least cost option" and instead pushed for a "commercial passenger from Gourock-Dunoon" they were flying in the face of both professional opinion and the conclusions of the Deloitte-Touche / Scottish Executive Report (2000) on the Gourock-Dunoon ferries which had showed that if you wanted to run a frequent passenger service Gourock-Dunoon (which is what the Council were arguing for in this "Users' Charter meeting), that doing so with a combined passenger and vehicle service would be a substantially lower cost (subsidy) option than would be a passenger-only service. In fact, the Deloite Touche figures suggested that the difference in subsidy cost associated with the two options could be expected to quickly run into millions of pounds over even a reasonably short time horizon. Even though the figures in Deloitte Touche / Scottish Executive report were provisional, the differences in terms of implied subsidy cost between the two options were so great that it was simply unreasonable to expect they could be bridged with any subsequent tweaking of the assumptions, however radical.
But what was absolutely unforgivable (and inexplicable in the light of the Deloitte Touche / Executive study and professional opinion was that the Council were not only subverting the case for a combined passenger and vehicle service with subsidy (which was the option notionally being pursued at the time), they were also subverting the case for a combined passenger and vehicle service with subsidy. Even if some residual subsidy was needed for a frequent combined passenger and vehicle service, it would still require less subsidy than a corresponding passenger-only service. That would not only be permitted under EC state aid and maritime cabotage rules, such solutions were actively encouraged by the European Commission as an efficient option which also reduced demands on public subsidy.
The Council's comments in the November 2004 meeting were consistent with their limited advertising (the previous month) of the new linkspan facility that was expected to be completed by the following Spring. The Council's advert was placed in the Herald newspaper by one of the participants in the "Users' Charter" meetings (Dunoon Observer 29 October 2004). However, as was noted at the time, this limited scope of the advertising of the new facility was bizarre given the strategic and commercial importance of the Clyde crossing. This limited advertising meant that it was unlikely to come to the notice of UK and European managing directors of ferry companies based outside the readership area of the Herald newspaper (which included most major ferry companies other than Western and CalMac, who already knew about the linkspan). It only makes sense to limit the advertising that way if you do not expect the link to be used by ferry companies based outside that readership area of the Herald newspaper.
In addition to arguing a case whose only obvious beneficiary would be Western Ferries, a further aspect revealed by the new information was that, rather than just being passive observers of Western's proposals for a "Users Charter" (which was the implication of the first tranche of documents released in February 2004), council officials were actively involved in helping and advising Western prepare the details of the Charter, as several of the documents indicate.
The Executive and Council officials can hardly have been unaware of professional opinion and the Deloitte Touche report. Yet what they were arguing (against a combined passenger and vehicle service and in favour of a passenger service) only not only ran counter to that and the public interest, it also subverted what the Councillors would argue had been the Council's position. And finally that line of argument and associated option would of course hand the whole of vehicle traffic here to Western by default, with or without a "Users' Charter".
On related issues, a point worth noting in passing is where one document says; "I suggest we meet to to-day to go over the points in your e-mail. I am certainly happy to follow up with bus colleagues on bus subsidy arrangements" (Executive internal e-mail 20 August 2004). It is not explained why this might be needed in the context of the "Users Charter" . Also worth noting is in the 9 November meeting where it says: "Linkspan/Passenger Facilities: (Western Ferries) outlined the relevant sections of the draft Charter document and commented that (Western Ferries) would be looking to (Argyll and Bute Council) and the (Scottish Executive) to assist with the planning process". This is also something that warrants further investigation since it appears to imply that Western wished both these bodies to assist it in a planning process associated with these physical facilities.
By December 2005, there were suspicions that talks had been held between the Executive and Council that would favour Western, though it would not be until the following month that the new Transport Minister would confirm in Parliament the number, dates and times of what were to be termed the "Users' Charter" meetings:
The Council responded as follows:
In one sense at least, the Council statement was right. They certainly were not promoting any single operator for the town centre to town centre route, indeed on the contrary its officials had been were promoting the option of, at best, a passenger only service for the route. But that of course flew in the face of other council assurances, before and after, that they were seeking to not only maintain but improve the combined vehicle and passenger service between Gourock and Dunoon town centres.
3. The Role of Western Ferries
Of all the three sets of participants in the Users' Charter meetings, the Western role and approach is most straightforward, explicable and predictable. I do have an advantage of more than three decades as academic, researcher and occasional policy adviser and consultant in the area of the economics of business strategy, but to be honest the issues here are not complicated and should have been, and be, obvious to anyone with a grain of common sense. As Western stated in the meeting 9 November 2004, "(Western Ferries) explained that .... they were a commercial operation and all parties should be aware of this".
One would hope the other participants in these meetings would not have needed reminding of this, but if they did, looking at the discussions from the perspective of what was in Western's commercial interests would have clarified a great deal.
I have already indicated above that the more the Executive and Council realised they were getting to the stage that a restrictive Users Charter was going to be necessary (if the threat of market entry or a robust Calmac service had receded), the less likely it would in Western's commercial interests to sign up to it. That was the case then, and will be the case in the future. Expressing interest in the tender had advantages for Western in terms of obtaining commercial information and deterring rivals, but actually tendering for the Gourock-Dunoon town centre to town centre service most certainly did not, for reasons I have gone through above. And any idea that a commercial company would be bound to a restrictive fares and service agreement in perpetuity is a ridiculous one, especially as the Executive realised early on (19th July 2004) that when there are no subsidy flows there are no obvious penalties for non-compliance.
There is no suggestion or evidence that Western Ferries management were doing anything other than argue in good faith, but of course circumstances change and indeed so do management, and so there is no guarantee that future shareholders and managers of Western Ferries would do anything other than exploit for narrowly defined commercial purposes the opportunities that had been put in front of them on a plate. Which is why it is crucial to look at the implications of these discussions and related actions in that light, and should have been done from the start - were it not for the case that these discussions should never have started in the first place.
.The unrealistic nature of the Charter discussions were epitomised by one remark by Western (9th November, 2004) "If (Western Ferries) became the sole provider from Cowal to Inverclyde then it could plough any additional income generated back into the services".
So despite all the apparent controls over its behaviour and related costs Western was offering, none of the additional income from being a monopoly would go in profits? Any semi-conscious Western shareholder would surely choke at that point if the statement was taken at face value, but the record shows that the statement was apparently allowed to stand without comment, consistent with the general standard of the discussion.
Any disinterested observer would and should have come to the conclusion that Western's' commercial interests lay (and continue to lie) in developing its short crossing and own bases at Hunters Quay and McInroys Point and avoiding committing to any solution that mean them paying berthing and harbour dues at the Council-owned Dunoon Pier or the CalMac-owned Gourock Pier.
In the 9 November 2004 meeting, "A&BC asked why (Western Ferries) would still improve the berthing at Hunter's Quay if they moved the bulk of their operations to Dunoon. (Western Ferries) explained that Dunoon was quite exposed and Hunter's Quay would be required as a bad weather alternative. It was also required for overnight berthing for (Western Ferries) vessels".
But it is difficult to see why an expensive vehicle linkspan would be needed just to tie up vessels for overnight berthing - a sound ladder for the crew would surely have been sufficient - while it is also difficult to stack up the costs of maintaining and indeed seeking to "improve the berthing" at Hunters Quay just so they could be used as an occasional bad weather alternative.
In fact, Western very quickly committed to "improve the berthing" on both of its bases on both sides of the Clyde while the "Users Charter" meetings and discussions were taking place 2004-05.
On the 18th February 2005, Western applied to Inverclyde Council for planning permission for a "replacement linkspan" at its terminal at McInroy's Point. Then on the 15th July 2005, Western applied for the removal of a earlier condition of planning permission that the existing linkspan be removed from the application site once the replacement was completed and operational (this was granted 9th September 2005)
Meanwhile, on the other side of the Clyde, Western around the same time (8th February 2005) was applying for planning permission for a new linkspan at its Hunters Quay facility to take over regular services from its existing facility .
Since the original application included plans and other details, it must be presumed that Western had been making plans for this new facility for some time before the 8th February 2005 application (when Argyll and Bute Council considered - 17th June 2005- planning permission, the relevant document refers to the plans submitted earlier that year in February) . On the 29th July the Council considered a further planning application in connection with the proposed new linkspan
This new application notes a condition placed on approval of the previous application that "At no time shall the new linkspan and the existing linkspan .... be used simultaneously or on the same operational day for embarking/disembarking of vehicles and/or foot passengers".
Western now argued in the new application: "The condition, as drafted, will have the effect of placing an unnecessary administrative burden on both the company and the council. More importantly, the restrictions would negate the advantages of having two operational linkspans. In the light of these factors the company would ask that on the same operational day be removed from the first sentence and the second sentence of the condition to be removed completely or adjusted to reflect the potential benefits of having two linkspans.
The planning application notes that "it is only during the course of the processing of this planning application that it has become apparent that Western Ferries are seeking a high degree of flexibility of the use of the two linkspans for operational reasons; the planning application as originally submitted indicated replacement linkspan, and it is clear replacement was not an accurate description".
As far as can be ascertained Western has still not got the operational "flexibility" it has been seeking at Hunters Quay in being able to have two operational linkspans there, though I believe it now has got at least close to what it is seeking in those respects at McInroys Point (this subject to confirmation). But in one sense, the current state of play is only partly relevant. As I noted above, the logical outcome of the "Users Charter" meetings would be a passenger-only service Gourock-Dunoon town centres, with Western being the sole operator of vehicle ferries and continuing to operate (or finishing up operating) only out of its Hunters Quay and McInroys Point terminals. Apart from the increase in traffic that the ending of the CalMac vehicle-service would entail for Western, the vehicle market has been on an increasing trend of up to 4% a year, and it would not be long before the increase in traffic was putting intolerable pressures on Hunters Quay and McInroys Point bottlenecks. Indeed, many of these pressures are already visible. It would soon come to the point that Western would not even have to lobby hard for the restrictions on its "operational flexibility" to be lifted and allow all four linkspans to be in operation during the same working day. Public pressure and complaints from vehicle owners (and indeed possibly the police) over long queues and congestion at both terminals would/will do the job for them.
And that is how you get a private unregulated monopoly over the Clyde crossing, a crucial and strategic transport link, which of course is why it is so potentially lucrative in commercial terms. We could not imagine a private unregulated monopoly over the Forth crossing, yet that is that is effectively what was being set in train here in these "Users Charter" meetings.
4. The Role of Luck
It will be noted that none of the participants in all the texts that have been provided to me under Freedom of Information would ever have expected their discussions to have been made public. If it had not been for a remark by .Mr Gordon Ross, Managing Director of Western Ferries in the Dunoon Observer (hard copy, not on-line 21st October, 2005 p.8) about his Users' Charter; "it's a legally binding document. That's my view and the same view is held both by the current transport minister and his predecessor", it is very unlikely that any of this would have been made public. I drew the attention of that remark to Jim Mather MSP who then asked questions in Parliament if there had been any meetings to discuss the Users Charter between the Executive and Western Ferries, and the answer in Parliament 13th January 2006 from the then minister Tavish Scott was that there had been six such meetings in 2004 and 2005. That in turn led to both Jim Mather and I separately requesting details of the meetings under FOI, with the initial tranche of documents being sent to me in February 2006. I immediately appealed, the results of that appeal are the subject of this present analysis.
It has taken nearly two years for us to learn this much about what went on. In another scenario, that remark by Gordon Ross would never have been publicised in the paper, or I would not have seen it, the existence of the meetings would never have been known, let alone their content. The tender would have come and gone, and the Executive would have concluded (probably around 2006) with expressions of regret that a vehicle and passenger service between Gourock and Dunoon town centres was not viable, but luckily there was a fall back position to protect the public interest that could be produced called a "Users' Charter" - along with very expensive plans for a passenger-only service between Gourock and Dunoon town centres.
There is another reason why we are lucky to have found out so much of the truth of what had been going on, and that is timing. The Freedom of Information (Scotland) Act only became law in January 2005, the first Decision under the Act was handed out in May late that year. None of the participants in the 2004 correspondence and meetings would have had had any experience of what the Act could lead to at that point, and it is interesting how much detail is provided in the 2004 texts before the Act came into force and how little detail is provided after in 2005, until it all goes quiet in 2006, a change that may reflect officials learning to anticipate and deal with adverse (from their perspective) consequences of the Act, and not be so ready to document sensitive issues.
In short, if we had been trying to get information a short time earlier and before the Act came into force, we would not have obtained this information, and if it had taken place a short time later once officials had realised what the Act could reveal of their deliberations, it is very doubtful that so much of what was happening would have been put down as a matter of record.
There is one further issue to be dealt with at this juncture as far as Executive actions were concerned, the issue of who to blame when the process outlined in Parliament December 2004 failed. Again, luck comes into the picture.
As I noted above, there was someone ready to be blamed for this fiasco. In 2004, three local individuals with technical, financial and economic expertise, and experience related to the issues of ferries in general and Gourock-Dunoon in particular, had produced a proposal that it would be feasible to run a frequent combined vehicle and passenger service on the Gourock-Dunoon town centre to town centre route without subsidy. They argued that the idea could be market tested, and if it failed a subsidised alternative could be brought forward.
The Executive brought forward their proposals in December 2004 without reference to, or consultation with, these three individuals (Smith, Ferguson and Kay). At no point before or after that December announcement did any member of the Transport Department of the Executive contact any of us in connection with the Executives proposal. Then as my Gourock-Dunoon blog for 19th March 2006 notes, the constituency MSP who was a political and (later ministerial) colleague of the two successive Transport Ministers, issued political literature labelling the Executive's proposals as "The Kay Proposals". Even taken at face value, it is truly remarkable to suddenly credit someone as responsible for a proposal when it is about to fail, especially when the actual proposal and process bore no resemblance to the proposal that he and his colleagues had originally put forward. Also without discussion, warning or information (I found out by accident), the tender proposal was to separately associate the idea for the tender with myself and my two colleagues - which was patently untrue, apart from anything else we had never suggested a restrictive tender format as part of the market testing exercse in the first place.
In fact, Smith, Ferguson and Kay had roundly condemned the Executive's proposals for some time, as both the Gourock-Dunoon blog here and the annals of the Dunoon Observer confirm. To associate me with responsibility for this travesty of a process was felt at the time to be the height of cynicism, especially since all three of us had given our time and energy to the proposals on a pro bono basis to try to support the local community to which we all belonged.
But had it not been for the fact that the previous month the first tranche of documents on the "User Charter" meetings had been released which raised legitimate questions about what the Executive had been doing, it is quite likely that I would have been made scapegoat for this farrago, and I (and my professional reputation) would have been discredited as having wasted public time and money with "the Kay Proposals".
At the time (March 2006) the general belief was that since the Executive knew by then that the tender proposal was going to fail that they were simply trying to find someone to blame - which was bad enough in itself
However, the new documents just released under FOI appeal make it clear that there was never any commitment in the first place on the part of either the Executive or the Council officials to finding any combined vehicle and passenger service for the town centre to town centre route, not even subsidised let alone unsubsidised. Instead, the effort was put into securing Western sole operator status and preparing the ground for what was seen as the inevitable outcome, which included the ending of the combined vehicle and passenger service, town centre to town centre.
But when the "User Charter" meetings were taking place and the decision was taken to pursue the tender option as part of the whole process, because the Executive saw they "might still have to go through" that hoop, it would have been known that at the time that the tender part was being set up to fail and that there would be a reckoning. There would almost certainly have been discussion as to how to respond when it did (inevitably) fail. And I was a convenient scapegoat.
There is no suggestion or indeed evidence that the then constituency MSP George Lyon knew about the "User's Charter" meetings, and what was being planned, but he did not have to. It would have been sufficient for those, or someone, involved in the "Users Charter" or tender discussions to advise him that I deserved credit for what was to follow
So I feel very lucky that so much of what actually happened has come to light, largely by accident and the good fortune that FOI legislation came into existence in 2005. My good luck may be reflected in the extreme bad luck that some public officials may feel that the existence and so much of the content of their discussion in the "Users Charter" meetings became made public. But I can hardly be expected express sympathy for those officials, not just because of the potential personal and professional costs to me had so much of this not come to light, but more importantly the potential economic and social costs to the wider community and the public interest. I will deal with some aspects of these wider costs below.
There is a parallel issue which at first sight might seem unrelated, but is not. My treatment in this context was totally consistent with my treatment by the same Scottish Executive later that same year (2005). I had given invited oral and written evidence to the Transport Committee of the Scottish Parliament in its inquiry into the proposed tendering of the CalMac network and I had put forward an alternative to the Executive's proposals, my proposal was based on the Altmark case. The then Transport Minister Nicol Stephen promised the Committee that I would be given an opportunity to discuss my proposal with the Executive before the final decision on the CalMac network was taken in Parliament. That never happened, instead just before the crucial vote in parliament September 2005, without warning or consultation, a briefing document was circulated for MSPs by the Executive. The piece dealing with my proposal starts: "Professor Kay's 5 part proposal which he suggests would meet the 4 Altmark criteria: 21. As set out at (B) Altmark (paragraphs 7 to 10 above) the Altmark criteria are not applicable to ferry services which fall within the scope of the Maritime Cabotage Regulation".
In short, the officials briefing note to MSPs made me look incompetent, I was apparently basing my whole proposal on principle of no relevance to the issue in hand, the rest of the briefing paper analysis was full of assertions which I would have been able to refute or deal with had I been given an opportunity.
It was not until October 2006 that an Answer by Commissioner Barrot of the European Commission to a question from Alyn Smith MEP confirmed my fundamental point that not only was Altmark applicable to the question of these services under EC law, it was central. But by then it was too late, Parliament had taken the vote and done so under completely misleading information as to what was the basic state of EC law in this area.
The point about this experience in the same year as the so-called "the Kay proposals" is that there are similar private and public issues as were raised earlier the same year with regard to the "Users Charter" meetings. There were those within the Executive who were prepared to pursue a course of action contrary to the public interest, with my personal and professional reputation being one of the casualties they were prepared to create along the way.
I was not the only university academic who received this treatment during the Calmac network tender discussions, two other colleagues who had given evidence to the Transport Committes inquiry received similar treatment in that briefing paper to MSPs. I cannot speak for them or my two colleagues who wrote the submission that was mis-termed "the Kay proposals", but I think the new Transport Minister will have to work very hard to assure outside experts that if they give evidence to Parliament and/or the Executive in the future, whether or not on a pro bono basis, that they will be treated fairly and their personal and professional reputations will not be put at risk by his officials' actions. I certainly will not co-operate with either the new Scottish Government or the Council until I feel there has been a satisfactory resolution of this aspect of the problem.
5. The Costs
The costs of all this depend on where you start from and where you finish. The "Users' Charter" meetings have to be set in the context of a continuing process of successive administrations protecting Western Ferries commercial interests, firstly by the frequency restriction on the CalMac service, and secondly by failing to allow CalMac to invest in the modern low cost vessels it needed for the route. As the present Chancellor of the Exchequer said in the UK Parliament when still an oppposition MP, "Caledonian MacBrayne was made to restrict its services simply to give the private sector operator a chance. That is not fair competition. It was rigged from the start to help the private operator. There was a negative public subsidy to keep a public asset tied up at a pier rather than providing the necessary service." Commons Hansard, 14 Dec 1988 (Column 1014-1015)
As far as costs to the public (e.g. taxpayers, communities, users) are concerned, the most visible costs are the unused linkspan and associated infrastructure at Dunoon Breakwater.
However, the excessive subsidy incurred by the taxpayer for the Calmac service (compared to what should be the case if there was a modern, frequent low cost combined vehicle and passenger service on that route) would be enough to pay for a new linkspan every single year.
Then there are the high levels of vehicle fares to users (reflected in Western's profits) compared to what would be likely to be the case if there was either effective competition or a PSO cap on vehicle fares on the route.
Now add in the economic and social costs to users of the degraded service on the CalMac route compared to what it should be if the necessary policies had been pursued here.
Next add in the economic and social costs, including constraints on economic growth, for communities on both sides of the Clyde as consequence of a high cost, degraded service with an uncertain future. The potential scope of these costs are best put in perspective by noting that the Gourock-Dunoon ferries are the Clyde Crossing just as the Forth Bridges constitute the Forth Crossing. As such, the ferries play a critical role in the transport infrastructure of the West of Scotland.
These would be the kinds of major economic and social costs that would be identified here if you were going to start costing the cost of public policy failure in this context. By contributing to, and indeed reinforcing, the public policy failures here when there was a chance to change tack, the "Users' Charter" meetings have a price tag attached to them running into several millions of pounds a year, the cost borne mainly by the taxpayer, users and the dependent communities.
If the "Users' Charter" meetings are set in the broader context of simply being the logical near-end point of the public policy failures identified by the present Chancellor of the Exchequer, Alastair Darling, in 1988, we would expect that a realistic cost benefit analysis of the cumulative real economic cost of these policy failures over the last quarter century would run well into a nine figure sum. And this would not be a final tally, the costs continue to rise as long as this situation is allowed to be perpetuated.
6. The Future
As far as the future is concerned, two points are worth emphasising to begin with. First, as far I understand the protocols of administrative handover (which forbids access to the materials of their predecessors), much of this should be news to the current Transport Minister in the new Scottish Government who has to rely on his officials to brief him as to past history and options. Some of these officials will be the same officials who were party to the "Users' Charter" meetings.
Which brings me to the second point. The officials who were party to the "User Charter" meetings are, as far as I can tell, still in place and occupying much the same positions that they did during these meetings, in particular two Executive and one senior Council official who were active in promoting the "Users Charter"..
That is an absolutely intolerable position, even setting aside any accountability for the conduct and content of these meetings, the idea that policy advice on this issue is still presumably being set and influenced by these individuals is completely unacceptable. As long as that remains the case, Scottish Government and Argyll and Bute Council policy statements on the future of the Clyde crossing will lack any credibility.
Other points that can made include the fact that there remains a great deal of information still censored from these meetings and related correspondence. Given the fact that so much uncovered to date is indictable, it raises question as to what remains hidden.
As to what action is taken in response to what has been revealed, I will certainly be considering what action I will taking, but that does not preclude other individuals and groups from considering separate actions if they feel their interests have been unfairly damaged by the actions of the participants in the "Users' Charter" Meetings.
As far as where policy on the Gourock-Dunoon ferries goes from here, at least there are new administrations in both the Scottish Government and Argyll and Bute Council, and while officials appear to be largely unchanged, there has been quite a change in terms of the national and local politicians with interests in this area since May.
The most crucial next steps is to restart the process outlined in the Deloitte Touche Report (2000) for an enhanced Gourock-Dunoon combined vehicle and passenger service. That should best be achieved by the Scottish government building and leasing out at least two ferries with PSO (fares cap) for passengers. Even if some subsidy is needed to begin with, this should reduce as the market builds up and indeed the potential of the route is such that eventually tenders may offer net fees for the rights to operate on the route rather than require subsidies.
As back up, provision should be made for a PSO capping (or reducing) vehicle fares on any firm operating on the Gourock-Dunoon market, this only to be imposed in the event competition fails to keep vehicle fares down to economically and socially acceptable levels. Since, as evidenced by Western's profits, no subsidy would be needed even if fares were reduced significantly, there need be no question of this involving EC State aid issues.
A complication is that, as with fisheries and domestic air transport, responsibility for negotiating and agreeing matters related to EC law with the EC Commission (including PSOs) lies with the UK government not the Scottish Government. Western could be expected to protect its commercial interests by lobbying the UK government fiercely against PSOs here in principle and practice. In this respect, it has powerful lobbying power and support, being able to draw on resources from outside and inside the firm. This would clearly be a potential problem, but at least it is useful to anticipate the main lines of resistance to achieving a workable public policy here.
The notion and practice of a maximum frequency cap on any operator on the Gourock-Dunoon market must also go, if there is any intervention as far as frequency is concerned it should be channeled through a PSO and expressed in terms of minimum, not maximum frequency (as for example in the case of some Scandinavian estuary or fjord ferry services which requires operators who wish to operate on a PSO-eligible route to offer a minimum hourly service, 24 hours a day). If the Forth crossing stays open 24 hours a day, why should not the Clyde crossing also?
A further essential policy issue is that under no circumstances must the Council planning restrictions on Western be loosened to allow them the "operational flexibility" they seek in being able to use all four of their linkspans are freely as they would like. There already exists two good public linkspans at Gourock Pier and Dunoon Pier and "operational flexibility" of the order that Western would desire would finally render them redundant for operational purposes and help complete the job of creating a Western monopoly.
A rational and sensible package of public policies here would not only substantially reduce the public costs of the Clyde crossing, it would dramatically and radically boost the local economies with major benefits for the users, dependent communities and the taxpayer. There is no complication in principle in achieving these gains, the experience of the "Users' Charter" shows that the major barriers in practice lie at individual and institutional level. It will be the task of the new Scottish Government, together with Argyll and Bute and Inverclyde councils, to not only develop these policies, but to deal with the individual and institutional barriers that will stand in the way of their implementation. Unless that last part is recognised and dealt with determinedly as priority, everything else will be a waste of time.
Neil Kay September 2007