This posted 26th July 2007

RET and the EC-subsidised private lobbyists

As is often the case with such events, earlier this week the BBC reported two different stories about Scottish ferries (RET and private lobbyists on ferries) and fused them into one report. The result is some potential confusion. I will try to separate out the two stories.

The RET trial

The BBC reports that the Scottish government is to examine bringing in a new tariff regime to cut ferry fares to the Western Isles. The details of a study on RET, which charges people as if they were travelling the same distance by road, will be announced shortly by ministers.

I have long argued that domestic ferry fares in Scotland, amongst the highest domestic ferry fares in the world, should be reduced significantly across the board. This would be a highly cost effective way of boosting regional economic development and (especially at times and places where there is existing spare capacity) would be largely self-financing with increased demand in the long run helping compensate for reduced fares per user.

However, I would caution against too much to be expected from this RET trial. Firstly, because I (like most economists) am not convinced the RET principle has a clear economic rationale or justification. Why not AET instead - Air Equivalent Tariffs - for ferries? And the old Scottish Office adopted FET - Ferry Equivalent Tariiffs for the Skye Bridge. (No, I don't recommend AET or FET but it shows the problems of using costs on one transport mode to benchmark fares on a very different transport mode instead of considering the social and economic costs and benefits of alternative pricing regimes for each individual mode). Secondly, because limiting it to one or certain routes will divert some traffic (especially tourists) from routes not subject to RET (which could have some adverse social, economic and political consequences). Thirdly, because any time-limited trial will not show up the long run changes in business activity and residential patterns that a sustained fares decrease would be expected to generate. Businesses won't expand, and people won't stop moving out of the islands (or start moving into the islands) simply on the back of a temporary trial-limited fall in transport costs.

Nevertheless, the willingness of the new government to consider radical surgery on a rather sickly pricing regime is to commended, and we look forward to seeing more details of what is planned here. It is to be hoped that this is the harbinger of a more systematic overhaul of the pricing and provision of these essential services.

The EC-subsidised private lobbyists

The same BBC report cites an EU-funded and Napier University-hosted "study" (sic) which it said claimed "fully state-owned shipping services, such as Calmac, were not the norm in the rest of Europe". and the repert says the "study" said the Scottish government should allow private companies to provide shipping services, as is the case with other transport such as bus, rail and air.

In fact the "study" turns out to be based on a 2-3 hour workshop with only private sector participants who have their own agendas to pursue . The "report" is a 25 page rehash of warmed-over lobbyists' complaints and is full of unsupported assertions, confused complaints and misleading statements. I could go through it in detail and refute it line by line, but life is short, so the the first and last paragraph will do to give a flavour of the whole thing.

The first paragraph reads

Over the past several years the Scottish Executive (SE) has expanded the role of state-owned carriers (CalMac/Northlink) in Scottish domestic shipping. This goes against EU policy and trends, where the European Commission has sought greater liberalization of EU Member State shipping markets in an effort to bring about increased private sector investment and operation of shipping services, including subsidized services.

The facts. EC Liberalization here has nothing to say about the actual ownership of individual carriers and the Commission has taken great care to emphasise that it will make no distinction between EC carriers, whether owned by the private sector, the state, charitable foundations, or any other governance structure under EC law. The process by which more state ownership has actually been expanded in Scotland is a reflection of competitive tendering processes carried out under EC law. The Commission has no problem in principle or practice with state ownership expanding as a consequence of such a process. They would have a problem if it was shown that such a process was unfair or discriminatory under EC Maritime and State aid law. But there are well established routes and principles - leading to Brussels - under which such potential distortions can be investigated. If the authors of this tract have evidence of such distortions, then they should put up. If they can't put up, then they should shut up.

The last paragraph concludes;

It therefore follows that probably the only course of action Scottish private shipping operators can take is to ensure that the European Commission is made fully aware of this matter. The Commission has in the recent past been rather used to this type of case, investigating similar situations in Spain, France and Italy, with these and all other EU states having now moved forward towards far greater liberalisation, privatisation and hence modernisation of their shipping markets, to the benefit of the economies and communities served. Scotland needs to follow suit, and remove the state from the shipping business. On the evidence presented here, it nevertheless seems probable that Scotland will be the last place in the EU to adequately reform its domestic shipping sector.

More facts. Contrary to the inference given here, the EC did not investigate "this type of case" in other parts of Europe with the aim to "remove the state from the shipping business", but instead to investigate potential or alleged breaches of EC Maritime and State aid law. The Commission has no direct interest in the formulation of domestic policy on ferries which it properly regards as the preserve of national governments. If the authors of this tract complained to Brussels that the state was still involved in running Scottish ferries, the Commission would properly say; "so what?". The Commission would take an interest and possibly launch an investigation if the authors of the tract could show how implementation of such policy breaches EC Maritime and/or State aid law. So if, as the authors state, the Commission should be "made fully aware of this matter", the proper step to take is a formal complaint under EC law, but since they do not actually state what EC laws have been breached it amounts to 25 pages of hot air. It is a bit like accusing someone of being a criminal without saying what laws they have broken. Any such accuser would be liable to be charged with wasting police time. It is worse here. The relevant police force (the EC) is actually indirectly subsidising them to make such complaints.

The tract as whole is repetitious and ill-informed. It is insensitive to and/or ignorant of the needs of the communities that these essential services serve and the routes involved. It also displays an almost complete ignorance of (or interest in) what existing EC legislation in this area actually says and what its implications are. But why let that get in the way of a good self-serving story?

How and why the EC should help subsidise these firms for this lobbying exercise (firms who collectively could buy and sell CalMac many times over) and how and why a Scottish university should host and give a platform to such a lobbyists' dream is only one of the minor disgraces attached to this story.

It is only because the previous administration left Scottish ferry services over-priced, under-provided and in a legalistic guddle that such nonsense like this can be perpetrated. It is all part of a softening up lobbying process. Once the CalMac contract is signed this summer and CalMac tied down to its fixed commitments under the tender, you will see the cherry pickers move in, preceded by their lobbyists, perhaps not immediately, but eventually, across the network, picking it part.

They are not interested in the network as a whole, they are not even interested in whole routes. They will cherry pick lucrative segments of particular routes; vehicles, freight, short crossings, summer traffic. They will leave the bits that don't make money (off-season, foot passengers, long crossings for integrated transport with rail and bus connections) to CalMac or Northlink. And the subsidy will go up, and these cherrypickers will complain even more about unfair state subsidy competing against their own commercial service until the CalMac public service is reduced to a heavily subsidised rump, if it is allowed to continue at all.

You think that can't happen? It already has.