Will Calmac be (part) Privatised?

In the current economic climate governments are desperately trying to save money by cutting spendings. One of the options they have is to run government funded services more efficiently or even to privatise them. Today Calmac was mentioned by the Scottish government as a company that could possibly be part-privatised to save £1bn. Calmac is state owned and is heavily subsidised by the goverment to make ends meet, or better, to make up for the losses. Calmac currently has the monopoly in the west of Scotland on many routes and provides so called "Life line Services" to most of the inhabited islands in the Hebrides. Western Ferries, a private company which also serviced Islay many years ago, competes on one route with Calmac which is the Dunoon to Gourock route. A competition which is rather unfair given the fact that the state, read the tax-payer, will cover the losses Calmac makes. This is not the case with Western Ferries. Of course Western Ferries would love to service Islay and other profitable routes as well but that could only happen if Calmac would be a private company as well.

Port Askaig Ferry Terminal

The problem with private companies however is that they are likely to compete on the profitable routes, called cherry picking, while the less profitable routes are neglected or in the worst case abandoned. This could threaten the principle of the "Life Line Ferry Services" and leave communities on less viable ferry routes with fewer or no ferry services which could potentially destroy fragile island economies. Privatising or maybe even part-privatising Calmac could cause such a side effect which is a scary prospect and could cause concern for potential investors in these fragile communities. So just talking about it is a reason for concern but in this economic climate anything is possible. Fortunately closing down ferry routes is not discussed yet, although there are voices that say that the possiblity to privatise any or all of the ferry routes should be discussed. Continue reading....

To understand how ferry services from Calmac work in Scotland you have to know that Calmac is not just the one company. David Macbrayne Limited is the parent company/holding company. Caledonian Maritime Assets Limited (CMAL) is the company that owns the ships and the piers while Calmac Ferries Ltd (CFL) is responsible for the day to day running of the ferry services. This leads me to the reason of this post which is an article that was published today on the Caledonian Mercury website titled "CalMac may be part-privatised to save £1bn". A quote:

Ministers are considering the effective part-privatisation of the state-owned company behind Scotland’s lifeline ferry services, it emerged today. 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. In their view CMAL would be turned into a new, private not-for-profit company. This new entity would be governed by members from island communities and it would 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. 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 CMAL has been included in the Scottish Government’s Ferries Review, which ministers have opened out to public consultation.

I can recommend a further reading of the full article where you can also read the opinion of Lord George Robertson from Port Ellen.

Tag: calmac ferries travel