Wednesday 07 June 2017
Regarding an inter-island passenger ferry service.
Mr. Bailiff,
I am aware that some States members have questions regarding the recent discussions over an inter-island passenger service and some have asked whether the Committee for Economic Development will be going out to open tender inviting bids from ferry operators on the feasibility of a frequent ferry link to Jersey.
Contrary to what might be understood by some States members, the Committee for Economic Development has not, at any point, gone out to tender for an inter-island ferry service and I would like to take this opportunity to clarify what has been discussed with Condor Ferries and the States of Jersey regarding this matter.
As part of on-going work on ferry links, the Committee is continuing to work with both Condor and other operators on ways to provide an enhanced passenger only service between Guernsey and Jersey. Condor recently put forward a proposal for an inter-island day trip service that would operate on a trial basis up until the end of October this year. The trial would have used two 41 seat boats with tickets available on a day return basis. For reasons I will explain, the Committee was unable to provide the financial support to enable the trial to take place.
The States of Guernsey and Jersey were initially asked by Condor to each provide a guarantee to cover losses up to £250,000 to enable the pilot to take place over the summer and autumn. In order to break even this service would have needed to have a utilisation rate above 90% over the entire trial period, including the autumn months. As such it seemed inevitable that the service would need to be effectively subsidized, although the amount of public money that would be required clearly depends upon the level of utilisation of the service. The Committee voted by a 4-1 majority in favour of supporting this service but did not have sufficient funds to ensure that any such effective subsidy could be covered without significantly impacting our work and support across the economy. This decision was taken in order to provide a trial of the service although the Committee was of the opinion that the service should have been provided by Condor Ferries as part of their service to the Island.
Late in the day, the Committee learned that Condor might have been willing to operate the service with a reduced level of contribution of £125,000 from each Island. This was an informal offer given the timing. The Committee was in favour of this service by the same majority but did not have the funds within its budget to support the service.
In order to consider if wider funds would be available to support the service the Committee approached Policy and Resources to see what funds could be made available. Following a reasoned discussion between the committees, P&R concluded against this approach. As a result the Committee informed Condor and the States of Jersey that it could not support the proposed service. The understanding of the Committee, formed through the discussion with P&R, was that the proposed service did not meet the requirements of the Future Guernsey Economic Fund. The justification of the service was part economic, a subject I shall return to, and part social welfare, i.e. providing a service that Guernsey citizens have expressed a desire for.
Following this decision, the Committee asked Condor to support this service without public funding; a request the company refused. The States of Jersey were willing to support this service in the manner I have described. Condor initially sought to work with them to provide a service focused on the needs of Jersey consumers but despite positive public statements that this would happen the service did not proceed.
The Committee has subsequently agreed publicly with our Jersey counterparts that it will work together alongside all interested parties to introduce an Inter-Island ferry service for 2018.
I should point out that there are currently no restrictions in place for the operation of passenger only services between Guernsey and Jersey. Thus, potentially all competent ferry operators would be free to operate on this route if they considered it to be commercially viable, and provided they met the required statutory marine and harbour regulations. Therefore there is currently no need to seek open tenders for an inter-island passenger only service.
However, services involving roll-on-roll-off ferries to Jersey are currently governed by the Memorandum of Understanding that Guernsey has in place with Condor and the Jersey Operating Agreement. Although Guernsey has not yet signed a similar operating agreement to Jersey's, the fact that Jersey has one in place effectively regulates access to Jersey Harbours for ferries operating a 'roll-on, roll-off service'.
As part of its assessment of the proposals, the Committee carried out an economic analysis of the costs and benefits of a regular ferry link to Jersey.
Economic benefits are identified in two areas:
- The additional government revenue from harbour dues; and
- The economic impact of the money spent by day trip visitors - both resident, business and tourist visitors - whilst visiting Guernsey.
Harbour dues are charged for each arriving and departing passenger. The amount realised is clearly contingent on the utilization of the proposed service, which is difficult to forecast with any reasonable degree of accuracy.
However, in order to illustrate the order of magnitude of such fees I will use an example of there being 12,500 passenger arrivals in Guernsey from Jersey using the service, and assume that passengers departing to Jersey matched this number. Based on a further assumption of 75% adults and 25% children, the fees that would be due to Guernsey Harbours would be c £70,000. Clearly there would be additional costs incurred by Guernsey Harbours in servicing this additional traffic and the overall benefit to the Island would need to be adjusted to reflect that. Whilst we have been unable to ascertain this figure, for simplicity we have assumed this reduces the value to £50,000.
Estimating the economic impact of visitors to the Island requires additional assumptions about visitors' expenditure in Guernsey. If we assume that each day trip passenger spends on average £50 a day then the total expenditure would be in the order of £600,000 based on the example passenger numbers. However, this is not the overall economic impact and to calculate this, two further important assumptions are required:
- How much of the value of this initial sale relates to imports and therefore flows directly out of Guernsey? We are a very open economy which imports many of the types of goods which tourists buy. The proportion of the value of sales in Guernsey that is economic impact will include profits, taxes, remuneration and the use of Guernsey materials. This will, of course, vary considerably depending upon the nature of the goods and little if any evidence is currently available on this. This may be very low on, say, a can of drink but would be higher in a restaurant that uses Guernsey produce.
- The subsequent economic activity which is triggered by the amount of expenditure which remains in Guernsey, i.e. the multiplier effect. There are no authoritative estimates of this for Guernsey but estimates for other small Islands have varied between 1.2 and 1.5. Given that estimates for the UK are in the order of 1.6 it seems an estimate nearer the bottom of this range would be more appropriate.
Based on these additional issues, and given the very limited amount of economic analysis of either of these issues relating to Guernsey, the Committee estimated that the overall economic impact of the sales from tourists to the Guernsey economy would be in the region of £150,000.
Taking these effects together, and using my assumptions, the total economic impact on Guernsey of the service could have been in the order of £200,000. This economic impact would fall between different stakeholders, with Government revenue through harbour fees and taxation, businesses through profit on sales and employees through remuneration.
You can see there is considerable doubt over the likely level of the economic impact that would have been generated from the proposed service. As such, the Committee based its majority decision to support the funding of the service on a mixture of the economic case and the social welfare provided to Guernsey citizens from the service. In discussions with P&R it was this mixed rationale which was presented.
As no ferry service to Alderney of a similar nature has been proposed, the Committee has not conducted any analysis of the likely economic impacts of any such service and would not have the information upon which to conduct an analysis.
The proposal for the summer inter-island trial was seen as way of testing the appetite for inter-island day trip travel. However, the use of two small vessels and the crewing requirements involved did make it an expensive option that would have required some degree of financial support from both the Guernsey and Jersey governments.
Unfortunately the 'boat has now sailed' on this particular trial, given the availability of vessels and the time needed to prepare for operation of the service and the number of summer months left to deliver a good return on investment. The Committee, following discussions with the States of Jersey and Condor Ferries, have concluded the service cannot operate this year.
However, the Committee continues to have regular dialogue with both Condor Ferries and the States of Jersey on ways of improving inter-island ferry connections between our Islands. The Comprehensive Service Review published by Condor Ferries in November 2016 highlighted that there was currently a service gap between the strategic needs of the islands in regards to inter-island ferry services. We will be working with Condor, and indeed any other ferry operator prepared to offer a passenger only service on alternative ways of closing this gap. This will include looking at areas such as enhanced scheduling to enable more day trip opportunities.
