Extract from Official Report from the Scottish Parliament
Rural Economy and Connectivity Committee 15 May 2019 [Draft]

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Where are our ferries?

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The Convener (Edward Mountain): I welcome Michael Matheson, Cabinet Secretary for Transport, Infrastructure and Connectivity, and Scottish Government officials Alasdair Graham, head of planning and design; Alison Irvine, director, transport strategy and analysis; Chris Wilcock, director, aviation, maritime freight and canals; and Andrew Mackie, head of rail franchising.

Given that we are so short of time, we will go straight to questions.

John Finnie (Highlands and Islands) (Green): Good morning, cabinet secretary. I have questions about the delay in the delivery of the new ferries. Have you received a response to your letter to Ferguson Marine Engineering Ltd that sets out the new programme and the cost of MV Glen Sannox and hull 802? If not, when do you expect to have that information?

The Cabinet Secretary for Transport, Infrastructure and Connectivity (Michael Matheson): Let me first apologise for the delay in arriving. If, after this part of the meeting, there are outstanding questions that need a response, I will of course be more than happy to provide the committee with a written response.

On John Finnie's question, at the beginning of May, the director of economic development in the Scottish Government received a response from FMEL to our request for further information on its planned programme. She has since had to go back to FMEL for further details on the timetable for the continuing work on both vessels and the associated costs, and she is waiting for those details to be provided.

John Finnie: Caledonian Maritime Assets Ltd has rejected a claim for additional costs from Ferguson Marine. Assuming that Ferguson Marine continues to claim those costs, how will the dispute resolution process progress and — this is important for my constituents — what impact will that have on the delivery of the ferries?

Michael Matheson: The committee will be aware that we have appointed someone to look at both sides of the dispute between CMAL and FMEL and to provide ministers with an impartial, independent view of the dispute. The process has already started and that work will probably take about four weeks to complete.

If the outcome is that there are costs that are attributable, the normal process of loans from the Scottish Government to CMAL would have to be gone through. However, it would be premature for us to say that will be the position, given the independent review that is being undertaken.

John Finnie: How confident are you that the fixed cost of £97 million will be realised?

Michael Matheson: It is a fixed-price contract for both the vessels. That remains the sum for their construction. Anything over and above that would have to be identified as an additional cost that was fully attributable to actions on the part of CMAL.

We are not yet at that point. The independent review will allow ministers to evaluate both sides of the dispute and come to a decision on the issue. However, if there were any additional costs that taxpayers have to meet through CMAL, they would have to go through the normal process of how loans are provided to CMAL for the construction of vessels.

John Finnie: Were that to be the case, what implications would that have for further ferry investments, which are much needed, as it is an ageing fleet? In the longer term, what would the implications be for the planned improvements to the ferry service?

Michael Matheson: At this stage, we are not anticipating it having any immediate impact on our ferry procurement programme. We will have to wait for the final outcome of the independent review to see whether there are any additional costs for CMAL associated with that. I do not want to prejudge that; it will have to be dealt with then. There is a potential impact but we have not arrived at that point.

In relation to the impact that the dispute has on services, it is disappointing that the MV Glen Sannox and hull 802 are so delayed. That means that we are not able to provide the additional services that we wanted to provide. On the Arran and Campbeltown route, the intention was to have two vessels throughout the year. That has not been possible because of the delay. The delay of the planned deployment of the additional vessel, hull 802, on the Outer Hebrides service has also had an impact.

You will be aware that in order to try to mitigate some of that impact, last August, we provided CalMac Ferries with a £3.5 million resilience fund to assist it in maintaining its existing vessels, to improve reliability. We have provided a further £4 million this financial year to continue to support that maintenance work and try to mitigate some of the risks associated with vessels going off-service. There has been an impact on our ability to provide greater resilience on some routes and to enhance services on other routes.

John Finnie: Will you please undertake to keep the committee updated on developments?

Michael Matheson: Of course. I am more than happy to make sure that you are kept informed as progress is made.

Jamie Greene (West Scotland) (Con): When did you last visit the yard to inspect progress on the two vessels? Can you confirm to the committee that work on both vessels is on-going?

Michael Matheson: I have not visited the yard; my ministerial colleague Paul Wheelhouse, alongside Derek Mackay, is engaging with the trade unions and the advice that we get on the progress of the two vessels is through CMAL. There is also an appointed independent individual who evaluates the work and the progress that has been made on the vessels. That information is fed back to the ministers to give them an update on progress.

09:30

Jamie Greene: My second question was on whether you can confirm that work is taking place on both hulls.

Michael Matheson: My understanding is that work is being undertaken on the MV Glen Sannox, but I cannot give you exact details on hull 802. Chris Wilcock can perhaps do that.

Chris Wilcock (Scottish Government): The latest figures that we have from CMAL indicate that people are still working on both vessels.

Jamie Greene: So the resource has been spread across both.

Chris Wilcock: According to the latest figures that I had from CMAL, which are probably a couple of weeks out of date, people are still working on both vessels.

Jamie Greene: Is CMAL on site to monitor progress, or is the Government just sending people periodically?

Chris Wilcock: CMAL has a permanent presence on site.

Jamie Greene: I want to ask about the potential impact on the cost. I appreciate that there is an independent arbitrator involved in identifying the cost overruns, but we already know that the cost overruns are in the tens of millions, and that does not include any future additional cost to the build. Given that it was a fixed-cost design and build contract, if CMAL is found to have liability for the overruns, will they be met by the Scottish Government — that is to say, by the taxpayer? Why would that be done in the form of loans to CMAL, and how does that relate to the loans that have already been given to Ferguson Marine? Is there any correlation between the two?

Michael Matheson: One of the loans that was given to Ferguson Marine was to provide it with working capital for the build, and the other part of the loan was to help it to diversify and develop as a business. That was the purpose of the loans that were provided.

I will ask Chris Wilcock to cover the exact process of the CMAL funding and the loans arrangement that would be necessary. The independent reviewer has been appointed to look at the dispute between FMEL and CMAL and to give ministers an independent view and evaluation of that.

As I said to Mr Finnie, if liabilities are found on the part of CMAL, we would need to consider providing funding in order for CMAL to meet those. However, I do not want to get into speculation on the costs of that. We want the review process that we have set in place to be undertaken impartially and independently, to give ministers an informed position from which we can make a decision. I ask Chris Wilcock to talk about the process of the loans that had to be provided to CMAL.

Chris Wilcock: On a technical point, the standard way that we fund the construction of vessels is through loans to CMAL that are then recovered over time though the charter agreement with the operator.

We would have to revisit that funding. I absolutely second the cabinet secretary's point about speculation being premature. I am keen to maintain the integrity of the on-going work.

The Convener: Sorry, I want to come in because I am completely unclear. When those loans were first announced — the £47 million pounds that was lent to Ferguson Marine — we were told in Parliament that they were to develop further business and allow the company to expand. Are you now confirming that those loans were working capital to allow them to build the ferries? The two statements do not tie up.

Michael Matheson: Two separate loans were provided to FMEL. One element was to develop and diversify the business and the other was to support the company with working capital.

The Convener: So there were two loans of £47 million.

Michael Matheson: No. A loan of £15 million was provided for working capital. A loan of £30 million was provided to help to develop and diversify the business.

The Convener: Thank you.

Jamie Greene: By default, that is an admission that the £97 million was never the fixed price. You just said that the Government gave an additional loan directly to the yard and not through the due process, which would presumably be via CMAL. Why did you give the money directly to Ferguson Marine, rather than to CMAL to give to Ferguson Marine? It seems like an anomaly in terms of how such projects are funded.

Michael Matheson: No. The funding that has been provided for the two loans came through a different route altogether, which is why the finance secretary is involved. It was provided through agencies for the purpose of supporting the business. It was not about ships or anything else; it was about supporting Ferguson Marine as business and supporting shipbuilding on the lower Clyde. Given the nature of the work that Ferguson was getting into in developing its ideas, the company had financial challenges around working capital, which is why the loan was provided. There is a measure in that loan for the money to be recovered to the taxpayer.

The loans that were provided to CMAL were provided through a separate process altogether. The process that has just been outlined to you is how we have funded the construction of ships and how we continue to fund them.

Jamie Greene: We agree that at the heart of all this, what matters to folk is that the ferries are delivered. They are clearly way over schedule. When CalMac was before the committee previously, they explained the extent to which that delay would put pressure on the existing fleet, given that the vessels operating on those routes are ageing and go offline on occasion.

Can you give us, or the people living in our island communities, any indication of when they might expect the new ferries to be in operation? You must have a rough idea.

Michael Matheson: I completely agree that where we are with these two vessels is certainly not where any of us want to be. We want to see the new vessels being used on routes.

As things stand, indications are that both vessels are expected to be completed next year. One will be completed in the earlier part of the year, prior to the summer, and the other will be later in the year. However, there are still some questions about the company's ability to keep to that timetable, which is why I said in my response to John Finnie that the director of economic development will seek further details and assurances about the timeframes that have been set out.

Richard Lyle (Uddingston and Bellshill) (SNP): I know why we saved Ferguson Marine, and I do not want to get into that. However, we ordered two new ferries, which are delayed. The fleet is getting older — we know that. Do you have any plans to order new ferries in the future? If the ones that are on order just now are delayed, should we not be ordering future ferries right now?

Michael Matheson: The next ferry that was due to be replaced was the one that operates on the Islay route, and the specification for that particular vessel is being done at the moment. The process is on-going with a view to finalising the specification and putting it out to procurement. That is the next vessel that is planned.

You might be aware that we are undertaking wider work through our review of the ferries plan, with a view to developing a new ferries plan. The current one goes up to 2022, and we are doing a range of work to prepare for the next stage of the new plan.

The process for the next ferry to be replaced is on-going. The work has not come to a halt. We are just waiting for the first two ferries to be completed.

Maureen Watt (Aberdeen South and North Kincardine) (SNP): When do you expect to consult on the ferries plan?

Michael Matheson: We are scoping some of the process at the moment. Some evaluation has already been undertaken of the ferry services in Orkney, Shetland and the Western Isles. We are also carrying out some research on the road equivalent tariff and we will feed all that into the process.

The process is due to be discussed again at the islands transport forum in August this year. That will be chaired by the islands minister, Paul Wheelhouse. We will then be in a position to set out the timeframe for the normal public consultation exercise.

A number of the stakeholders who have an interest in these matters are already engaged in the process and are looking at some of the scoping work and the issues that need to be addressed in the next ferries plan.

The Convener: You said earlier that both ferries will be delivered next year. Could you write to the committee with some dates? It seems odd to me and I am struggling to understand how a ferry that was launched 18 months ago and is floating will be completed at the same time as a ferry that does not have bows or a stern. If they are truly to be delivered at the same time, I am confused. I am not sure that that is what you meant, but we do not have time to probe further on that. Please could you write to the committee with the exact dates when those ferries will be delivered as soon as you know them?

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