CalMac may be part-privatised to save £1bn

Ministers are considering the effective part-privatisation of the state-owned company behind Scotland’s lifeline ferry services, it emerged today.

They believe such a change to the parent company behind Caledonian MacBrayne could save the taxpayer between £800 million and £1 billion over the next 12 years.

But it would also represent a radical departure for an SNP administration which has been averse to any form of privatisation up until now.

Ministers have been persuaded to examine the proposal in response to the looming cuts to public spending, which will take place over the next few years.

Caledonian MacBrayne runs ferry services to most of Scotland’s west-coast islands. It is wholly state owned and state run and it costs the taxpayer about £100 million a year in subsidies for running costs and another £60 million or so in annual capital costs for new boats and piers.

It is this £60 million a year which ministers believe they can save.

Their plan – revealed in the Times today – would see an end to the current state model.

Caledonian Maritime Assets Limited – the part of ferry operation which owns all the ships and piers – would be turned into a new, private not-for-profit company.

This new entity would be governed by members from island communities and it not be able to make a profit. But it would be a private, rather than a public, company and, as such, it would be able to borrow on the open market.

CMAL needs between £800 million and £1 billion over the next 12 years to fund new ferries and piers. Under the current, state-owned model, this money has to come from the Scottish Government but, under the part-private scheme, it could be raised from the markets – saving the Scottish Government from having to make this investment.

Ministers stressed today that they had no intention of privatising the day-to-day Caledonian MacBrayne ferry operation and this move to possibly part-privatise the holding company behind CalMac was only being considered because of the need to save money.

But the revelation that such a radical change is being considered at all prompted calls from some of the Scottish Government’s critics for a more far-reaching change. Some said they wanted the whole ferry system put out to tender and others said that, if the government accepted this part-privatisation model for ferries, it should do the same for Scottish Water.

However critics on the Left warned that fares and berthing charges could rise as a result. They said the money was only being borrowed by CMAL and it would have to be paid back. That could mean increased charges all round as the new, private, company tried to repay the loans.

The proposal to part-privatise Caledonian Maritime Assets Limited has been included in the Scottish Government’s Ferries Review, which ministers have opened out to public consultation.

The review warned that the status quo – with the company being funded entirely by the Scottish Government – is no longer an option because there is not enough money available to fund all the new boats and infrastructure that CalMac needs.

Instead, ministers suggest a number of options, the most detailed and most likely of which is the proposal to turn CMAL into a not-for-profit private company.

The review states: “If such a company had private sector status it would have the power to borrow commercially.”

Lord Robertson of Port Ellen, the former UK Labour Cabinet Minister, told the Times the Scottish Government was right to look at part-privatising CMAL but it was not being radical enough. He wants the entire CalMac operation examined to see if it can be done better and, if necessary, all the routes opened out to tender.

Lord Robertson lives on Islay so knows what it is like to rely on local ferry services. He is also a non-executive director of Western Ferries, which runs a non-subsidised service between Gourock and Dunoon in competition to the subsidised CalMac operation.

He said: “We have to be radical about how we provide for these island communities. There is no reason why, if the private sector can run a service, why it is not doing it. There is something almost scandalous about the fact that CalMac loses money on every route in Scotland. Some of these are very, very popular and some of these could be run very profitably by other companies.

“It seems ludicrous to keep this monolithic, state-owned monopoly operating almost without limit.”

Jackson Carlaw, for the Tories, said that the Scottish Government’s conversion to part-privatisation should open the door for other, similar, moves.

He said: “Because of the financial pressures, the government is prepared to look at things they have never been prepared to look at before. If they are prepared to look at transferring CMAL to a not-for-profit operation then there is nothing to stop them looking at Scottish Water in the same way.”

The Scottish Government has resisted calls for it to part-privatise, or mutualise, Scottish Water. But the model it is considering for CMAL is similar to one its critics want it to adopt for Scottish Water.

A senior Scottish Government source stressed that the two operations were completely different and just because part-privatisation was being considered for one did not mean it would be considered for another.

The source admitted the CMAL plan was under “serious consideration” but he added: “We will see wait to see what people say in response to the consultation before we make a decision.”

However, critics warned that, if CMAL does become a private entity and borrows money from the markets, it will have to pay that money back and that could mean higher fares, greater berthing fees and increased costs for passengers all round.

Ian Macintyre, the Scotland and Northern Ireland organiser for the RMT union, was adamant that the whole ferry operation should stay “publicly owned and publicly run and publicly accountable”.

“Rather than borrowing money from the markets, wouldn’t it be better for CalMac to borrow from the part-nationalised banks which we own, like RBS and HBOS? That way we could keep investing in the fleet without using the markets,” he said.

http://caledonianmercury.com/2010/08/17/calmac-may-be-part-privatised-to-save-1bn/009979

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