Navigating stormy waters

DAVID ROSS, Highland Correspondent

The Herald February 03 2007

FOR the first time in the company's history, Caledonian MacBrayne is to recruit its own officer cadets for its ferries. For 150 years CalMac and its predecessors used to employ navigating officers and engineers who had won their tickets in the coastal or foreign trades.

Now 16 cadetships will be created each year and for the next three years, and where possible they will be filled by young islanders.

It is one of the few welcome legacies of the prolonged and apparently chaotic attempts by the Scottish Executive to tender CalMac's routes.

This has already required the publicly-owned ferry company to create CalMac Crewing Guernsey Ltd, an offshore company, in which 800 seagoing staff have been registered since February.

Potential competitors use crew from offshore firms that do not pay employers' 12% national insurance contributions. So, as the Herald revealed in November 2004, CalMac had to create an offshore crewing company to cut more than £1.5m a year in costs.

Part of this dispensation by the tax authorities requires UK shipping companies to recruit cadets.

However, there are no competitors for the 25 Clyde and Hebridean routes following the withdrawal of V Ships from the tendering process on Monday.

So CalMac is now just avoiding paying millions of pounds of national insurance to HM Treasury, which pays a block grant to the Executive, which in turn pays CalMac an annual subsidy which this year was £34m.

But to justify that subsidy to the European Commission, CalMac has had to become a group of seven different companies in a costly radical internal reorganisation just in order to compete to operate its own routes in what is now a paper tendering exercise.

Opposition politicians have denounced it as an utter fiasco while ferry users have absolutely no idea what's going on. The man who is trying to make sense of it all within CalMac is chairman Peter Timms (63).

However, the Bute-based businessman who sells micro-circuits around the world, was putting the best spin on things in an interview with The Herald: "It is difficult, but there is a positive side. CalMac was the only UK merchant shipping fleet that was paying the employers' national insurance contributions. It wasn't a level playing field. It was costing us millions more to operate the fleet than it would any competitor. So the change means we will need less deficit funding from the Executive, which is a welcome consequence of tendering, as is the creation of CalMac officer cadets which can only strengthen our ties with the communities we serve."

Ministers had made clear they want the tendering to continue, despite there being no competition: "So we will carry on working on a bid compliant with the Executive's invitation to tender.

"We have got to show that our bid is value for money and will provide the best service. We have until 3pm on May 11 to get it in, so we have a lot of work to do."

He refused to speculate on what might happen if CalMac found it couldn't submit a compliant bid.

Presumably nothing, CalMac would operate as normal, despite having spent a lot of public money restructuring. We should hear in a parliamentary question next week just how much, but many observers put it in excess of £20m.

We have got to show that our bid is value for money and will provide the best service. We have until 3pm on May 11 to get it in, so we have a lot of work to do.

"We will leave politics to the politicians. We are carrying on as planned. That's why from Monday (February 5), along with senior staff, I will be embarking on a fortnight's programme of meetings with a wide range of organisations, community councils and local authorities, from Arran to Stornoway in order to discuss the implications of the tendering.

"There will be meetings with staff. We will talk about how our services will be operated from October 2007."

One service which may not operate at all is the Gourock/ Dunoon car ferry. It was tendered separately and the Executive received no bids, not even from CalMac itself. That was because they were looking for an operator who would work it without a subsidy, despite CalMac currently losing £2.5m on it.

Since 1982 CalMac has received a public subsidy for foot passengers travelling between Dunoon pier and Gourock's pier and station. This is because Western Ferries operates between Hunter's Quay and McInroy's Point, a couple of miles from Dunoon and Gourock respectively, not so handy for the walking traveller.

But in return, privately-owned Western has benefited from CalMac being restricted by its political masters to one service an hour to Western's three or four.

Western has built up an 80%-plus share on the lucrative vehicular market, 600,000 car journeys per year, although it is now making a complaint to Audit Scotland that CalMac used its passenger subsidy to cross-subsidise car ferries on the route.

But Timms doesn't hold out much hope for CalMac continuing to run car ferries between Gourock and Dunoon, hinting at a passenger-only operation.

"The great shame about Gourock/Dunoon is that the community strongly believes there is room for two commercial operators. Bluntly there isn't.

"The volume of traffic, which is growing, still doesn't support two commercial operators fighting it out. I understand the interests of the community wanting a pier-to-pier service and that they want the very best vessels possible.

"But the sheer logistics and cost of operating these services means that inevitably one will be a dominant operator. As it happens it is Western Ferries.

"The service we provide has been prescribed by the Scottish Office and the Executive. We can't change the vessels. We can't change the timetable. We can't change the fares. In that circumstance you have to hand it to Western Ferries who have no such restrictions."

Meanwhile, in October, CalMac attracted a welter of criticism when it published figures showing that all 26 routes made a loss. Even one of its staunchest supporters, former government minister Brian Wilson, publicly questioned whether CalMac was now worthy of defending come what may.

Timms is clear. "They do all genuinely make a loss, some much greater than others. But some critics like Brian think, for example, we should make a profit on Stornoway to Ullapool.

"We can't. We have a big ferry and a big freight vessel which are needed because we need to take whatever weather the Minch can throw at us. That's why we lost £4.5m, but even when we were just operating one vessel it still couldn't make a profit."

Another controversy was the first Sunday sailing to the traditionally Sabbatarian island of Harris introduced last spring. He says it has been cost-neutral but a valuable addition for islanders and tourists. Unlike his predecessor Harold Mills, he didn't have to battle with his Christian conscience over the issue.

"Maybe it was because I spent my early school years in the only English-speaking school in Rome, which was run by monks in the Vatican, and then sent to a boys' school for Church of England clergy in Canterbury, but I am not a great fan of religion dictating other people's lives.

"However I respect the wishes of the community, but two conflicting views were strongly expressed."

His educational background is just one of the things which makes Timms a most unusual CalMac chairman. A driven businessman, he works through most nights, catching just two hours' repose in the early evening and the same in the early morning, as CalMac officials can now testify.

He is fluent in Italian, having lived in the country for eight years between 1953 and 1961, and takes particular pleasure in disarming waiters in Italian restaurants by joining in their conversations. His father had worked for the old British European Airways, which was based in Rome before moving to Sweden.

He trained as an apprentice electronic engineer and began work with a subsidiary of Philips. He went to the US with the company, thought of staying there but came to IBM in Greenock instead, settling in Skelmorlie.

He had an ambition to set up his own business, "so I joined Thorn EMI in London specifically to get general management experience which would help me. We then moved with our three sons back to Scotland, to Rothesay.

"We chose Bute because it was in the Highlands and Islands Development Board area and the board was offering assistance that was far more user-friendly than was the SDA".

That's how he started Flexible Technology with two other former IBM engineers and one from ITT Canon. They make electronic circuits largely for the computing, avionics and defence industries.

"We started in 1981 with just the four of us, but now we employ 75. In 1986 we sold the business to Cambridge Electronic Industries and I remained MD, but in 1992 I bought the business back."

He was asked to join the first ever board of Highlands and Islands Enterprise in 1990, and served until 1998. He then moved to Argyll and the Isles Enterprise, which he now chairs.

"HIE had been very helpful and I wanted to put something back. I joined CalMac in 2000 for two reasons. I didn't think the service to Bute was very good, and I was concerned about the tendering. I felt the quality of the service would diminish if a private operator took over. Now it doesn't look as though that will happen, but who knows what the future holds.

"After all Harold (Mills) became chairman in 1999 specifically to oversee the tendering. I was appointed in 2006 to do exactly the same thing."