The Truth Coming Out

The Herald newspaper 23rd February 2011 really set the seal on what I had described as "a parcel of rogues" in my earlier blog. .The Herald reports:

immediately after the 2007 elections, then transport minister Stewart Stevenson held secret talks with CalMac rival Western Ferries about it potentially taking over services from its state-funded counterpart. Gordon Ross, the firm's managing director, said this included an offer to withdraw CalMac's car ferries - which also carry passengers between the town centres - to make it easier for Western. The private firm operates a nearby out-of-town route for largely vehicular traffic. Mr Ross said he was asked whether he would operate services from town centre to town centre but refused as it would have meant competing against CalMac. "Thereafter the transport minister made an offer to remove CalMac's vehicle service if Western Ferries moved some of its services to the new pier in Dunoon. The Government confirmed they would explore this option with Argyll and Bute Council. They never did revert to us but they never withdrew this offer," he said".


So we now know that - as the Herald says - an offer to effectively give Western a vehicle-carrying monopoly on this strategically important route was made immediately after the 2007 election, despite the fact that the promise to build new vehicle-carrying vessels for the town centre route was a key election pledge which helped the party gain power in Argyll and Bute - and indeed the rest of the country.

This still leaves some puzzles, one of which is that the then Transport Minister was not renowned for imaginative or even independent thinking, and this proposal was almost certainly fed to him.

The civil servants were almost certainly part of this and as previous Ministers will testify in private, they have their own Western-oriented agendas here. But that is hardly enough to explain why this happened and so quickly after the election.

Clues may be found in the subsequent short list for the Gourock-Dunoon tender published April 2010

The business models of the shortlist are very different, but there are two that stand out. Western's business model is based around cherry picking unsubsidized high value segments (here vehicle carrying) on short crossings with its own linkspans.

By contrast, Brian Souter's company Highland and Universal Securities Ltd in its ferry activities (reflected in its New Zealand holdings) has been based around subsidized foot passenger commuter traffic often integrated with its own bus services: its own NZ company Fullers says;

Fullers has been the leading ferry operator in Auckland for over 20 years … Fullers also owns and operates the Waiheke Bus Company, which runs bus services to and from all Fullers ferry arrivals and departures on the island.


Brian Souter has also been trying to start a fast passenger commuter ferry service on the Forth Estuary linking with buses. He has been trying to get subsidy for this and has failed and if he had asked me first I would have told him he would have no chance because it is against EC law - the 1992 Maritime Cabotage Regulation only allows for island ferry services to be subsidized.

This created problems for certain CalMac routes such as Tarbert-Portavadie and Gourock-Dunoon and in 2003 the European Commission issued a Communication which stated that long estuaries or fjords which lead to a detour of about 100 km by road may be treated as islands for the purposes of the Regulation as they may cause a similar problem by isolating conurbations from each other. The ratio between the distance around the estuary and the distance across should be around 10 or greater.

This opened the way for Tarbert-Portavadie and the Gourock-Dunoon Clyde Crossing to be subsidized since these physical requirements fit them (as they were designed to do) - but not the Forth Crossing. Brian Souter would have found this out once he tried to squeeze the physical characteristics of his Forth Estuary fast passenger ferry service into the requirements of the EC's 2003 Communication.

But as he would also have found out, while he could not get subsidy for his fast passenger Forth Crossing connecting with his buses on either side, he could expect to get subsidy for any fast passenger Clyde Crossing connecting with buses on either side.

So where does that leave us? With two shortlisted firms both with very different business models and both with very different reasons for interest in Gourock-Dunoon.

Western Ferries business model is to focus on carrying vehicles on its own linkspans and short crossing. They would have no commercial interest in running any service that involves paying berthing dues for the publicly-owned linkspans and there is no commercial interest in their actually putting in a bid once they can be sure that there will be no competing vehicle service bidding - in short, any time from now on. In commercial terms they would be quite happy to see any other company taking on the high cost low revenue foot passenger service here that they do not want.

By way of contrast Brian Souter's company Highland and Universal Securities would find the foot passenger market between the town centres very attractive as a bridgehead and link to help develop bus services on either side of the Clyde, especially if the foot passengers came with a subsidy as well.

Whether this would be with a fast passenger service is less certain especially since there is not the same landing or docking opportunities at Gourock or Dunoon that were available for the hovercraft experiment on the Forth.

Let us be quite clear that there is no evidence or indeed any suggestion that either company did anything wrong here. On the contrary, the two scenarios painted here - Western with a vehicle monopoly running on its own linkspans and Highland and Universal Securities with a near complete foot passenger monopoly running on the town centres route - make perfect sense from a commercial perspective. These companies are simply acting in the interests of their respective shareholders which is what they are supposed to do. There is no evidence or suggestion that they made any agreements or understandings, on the contrary the evidence in the Herald article of 23rd February is that when the government tried to offer a deal that would give Western Ferries a vehicle-carrying monopoly that this was rejected - and for sound commercial reasons given that Western would immediately know when the deal was offered in 2007 that the government would not make such an offer if they really intended to build new vessels for the town centre route and so Western could eventually expect to have all of the vehicle-carrying market if they just waited.

But all this may still help explain why the offer to withdraw CalMac vehicle service was made by the government in 2007 immediately after taking office. If there were thought processes involved here they were certainly creative thought processes above the cerebral level and pay grade of the hapless Transport Minister, even though he may be the one lined up to carry the can for this now. In this week's Dunoon Observer the constituency MSP talked of a "win-win" that included Western in terms of the offers the government had made and Western rejected. However, without even consulting the firms concerned the government in the broader sense may have been thinking laterally about a broader "win-win" beyond Western that they thought would solve a number of problems and serve (they thought) a number of their own objectives. Indeed, it is not difficult to imagine deluded voices in the government arguing that this is actually in the public interest and that this would be what the public needed, even if all the evidence was that this would not be what the public wanted.

And if this model and combined solution works in Cowal it could also work in other places such as Bute - and so on The end of my "Rogues" note was only concerned with Western Ferries plans for Bute and other parts of the whole ferry network. In the case of Bute this could leave it with the only other ferry service other than Western ferries being a subsidised foot passenger service. I said in that note that

"If Bute is "lucky", it might finish up with a passenger-only service from Wemyss Bay to Rothesay as the only alternative to Western, just as Gourock-Dunoon might be "lucky" to finish up with that now".

That (subsidised of course) passenger-only service for the same reason (and with the same business model) set out here would be very attractive to Highland and Universal Securities. Western could do Ardyne Point to Port Bannatyne while Highland and Universal Securities would have strong interests to get what would be left of the subsidised foot passenger service Wemyss Bay to Rothesay. There is no reason why the Western Ferries / Highland and Universal Securities hybrid arrangement with Western taking vehicles and short crossings and Highland and Universal Securities taking subsidised foot passengers and long crossings linking with its buses could not eventually finish up being applied throughout much (or indeed just about all) of the CalMac network with the effective end of public services (in the form of CalMac) here, and major implications for control over public policy and regional economic and social development.

This specific ferry/bus sea and land arrangement could finish up dominating much of the Highlands and Islands and other parts of the West Coast such as those parts of Inverclyde and Ayshire linking with the Clyde Coast ferry network.

As I said there is no point in criticising firms for doing what they are supposed to do which is to serve their private interests. They did not do anything wrong here as far as can be seen. But if firms exist to serve the private interest, governments exist to serve the public interest which may not always coincide with that private interest. Certainly the outcomes which the government has effectively ensured through its incompetence and duplicity are not in the public interest. A parcel of rogues? Given the rate at which the government's strategy is unravelling here with new facts emerging almost daily, I don't think we have heard the end of this yet.

Neil Kay 23rd February 2011