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Statement by the President of the States' Trading Supervisory Board

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Wednesday 26 February 2020

General Update

In 2016, the newly formed STSB set out its vision for the States-owned trading operations. It was to be a consistently well managed, efficient group of companies that deliver a return in the long-term best interest of islanders.

The progress the group has made towards achieving that vision, both collectively and individually, was reflected in our first consolidated annual report, published last December. In that report, we no longer refer to our various operations as "trading assets". That term was first coined in 2016, to reflect what then was a very diverse portfolio, which differed greatly in their commercial approach. Since then the group as a whole has evolved considerably, to the point where we now refer to them all as businesses.

The development of clear performance objectives, built around customer needs and expectations; appropriate governance; and more consistent, commercial mindsets are now evident right across the group.

Much of the credit must go to the management and staff within the group, who have risen to the challenge. I must also acknowledge the contribution of the STSB's two non-States Members, who have brought extensive private sector experience to the Board as well as committing considerable time and energy. That was strengthened in 2019 by the recruitment of business advisers, who now bring additional commercial experience to the boards of each of our businesses, and give their time generously and unpaid.

Among today's agenda, members will be asked to agree new succession planning arrangements for the STSB. It will extend the appointments of the current non-States Members, to allow time for the next Board to become properly established. This will provide much needed continuity at start of the next political term, as well as assisting and supporting any new STSB members. We believe that is important, and I hope States Members will agree to it.

Turning then to the progress in 2019.

Undoubtedly one of the most notable achievements of the current States term has been the roll-out of the island's new waste strategy. This reached its conclusion last year, with the completion of the new facilities at Longue Hougue and the introduction of the new charging arrangements.

The parishes deserve enormous credit for the role they have played, as do their collection contractors. They do a fantastic job. We must also acknowledge the small team at Guernsey Waste, who planned, co-ordinated and communicated what was a very large, complex programme. Change is seldom welcome and never easy, but a measure of their success is how quickly islanders have adapted to and embraced the new systems. Guernsey's recycling rate has increased significantly, and is on a par with, if not better than the very best in Europe and possibly the world. I am sure that will be a source of some pride for our community.

Such has been the success of the strategy in reducing waste, the amount households have spent under the new pay as you throw system is considerably less than envisaged, and for 2019 was below what was needed to meet our costs. That leaves us with what some in this Assembly previously described as "a nice problem to have". However I can give the public some reassurance that we do not anticipate the need for any sudden sharp rises. This is a long term waste strategy, so it needs a long term pricing strategy, which the team is working on.

Another important major project successfully completed in 2019 was the replacement of the undersea electricity cable to Jersey. The STSB worked closely with Guernsey Electricity in preparing and approving the business case for this investment, to take advantage of an early window to carry out the installation. Electricity imports are restored to the desired levels - and all now from renewable sources - and on-island generation is again providing a predominantly back-up capability.

2019 also saw the arrival of Aurigny's new ATR aircraft, which we are informed will result in much lower maintenance costs. The STSB again played a key role in this, having overseen a comprehensive fleet review in 2017 and provided oversight of the subsequent business case for the new aeroplanes in 2018.

As members are aware, some time ago the STSB set Aurigny the objective of achieving a break even position on its UK routes - which it was just £400,000 shy of achieving in 2018. However 2019 was another difficult year, as all local operators adapted to the new open skies policy, and with the position on the loss-making Alderney services still unresolved.

Nevertheless, recent developments concerning other operators have once again underlined why we own an airline. Aurigny remains critical to the security of our air links, and given the concerns that some outlying communities within the UK are facing, we should not underestimate its importance.

Last year we published an independent efficiency review of Aurigny. That concluded the airline is efficiently run and generally well-managed, and identified where there is room for improvement. We will continue to work with Aurigny's board to ensure those opportunities are fully exploited.

An efficiency and benchmarking review was also carried out for States Works last year, which again has produced some very encouraging results. That too has identified areas for improvement, which will entail some significant but positive changes for the business, its staff, and its clients.

Returning to an aviation theme, we continue to progress the refurbishment of Alderney's runway. We know how important this is for the people of Alderney and it remains a priority for us. Following approval by the Assembly last year, the detailed design is being progressed and a number of specialist airfield contractors have expressed interest in the construction contract. We expect to award that contract by the fourth quarter of this year, subject to P&R approval of the business case.

Other ongoing projects include the future plans for managing the island's inert waste and for Guernsey Dairy, both of which we expect to bring to the States soon. We are also progressing the detailed review of harbour requirements and, separately, an Environmental Impact Assessment on a potential future land reclamation east of the QE2 Marina.

These are all good examples of where STSB continues to assist other Committees to deliver their mandates, and is helping shape key policies affecting our operations.

For instance, the harbour investigations will inform the work being undertaken by the Seafront Enhancement Area programme and the Development & Planning Authority, in looking at the broader development opportunities around the Eastern seaboard.

We also work with Environment & Infrastructure on matters related to the dairy industry, waste, and energy policy; and will be assisting P&R and Economic Development in establishing a coordinated and coherent framework for air routes. Similarly, the efficiency review of Aurigny was jointly commissioned with Scrutiny Management Committee, and our Lottery staff continue to support Health & Social Care in their work to assess the extent of problem gambling and measures to tackle this.

At this point, I would like to reflect on two key challenges the STSB has had to deal with during this term. The first relates to delivery by other Committees, and the second is an historic issue.

STSB operates within the framework of legislation, regulation and government policies. Where there are government policy gaps, or where Committees have been unable to deliver aspects of their mandate, that can have a major impact on us.

For example, delays in agreeing an energy policy and progressing new regulatory arrangements for the States-owned utilities have had a material impact on Guernsey Electricity. The uncertainty has made it harder to plan effectively - particularly around the major investment in infrastructure the island requires, and the evolution of tariff structures, as we transition to a lower carbon future. These are critical issues for both Guernsey and the STSB, and we cannot perform our role effectively unless the policy direction set by the States is clear.

Similarly, the delay to awarding a PSO contract for the Alderney routes continues to impact on Aurigny. That will continue well into this year, whether or not the airline is eventually awarded the contract. The uncertainty is now impacting on the people of Alderney, through a reduction in the airline's ability to service these routes this summer. I can only offer my apologies for this to everyone in Alderney.

We recognise these policy issues are not straightforward, but we also have to acknowledge they impact on our businesses. It is not within the gift of the STSB to resolve this, but we will continue working with all other states bodies to assist wherever we can and help address the problem.

And the historic issue that I mentioned is the lack of infrastructure investment in the past. Guernsey Dairy is a prime example, as are our harbours, which have a backlog of essential maintenance.

I spoke earlier about the transition to a more commercial mindset. That has included dispensing with the public sector funding approach, where major capital projects compete for funding priority from a central pot.

The focus now is on properly-funded, long term strategies for asset replacement - including buildings and other infrastructure - as part of the business planning process. Unfortunately we will need to look to the capital reserve to help address some of the historic underinvestment, but we have now grasped this nettle.

I will end on a positive note. My Board is very proud whenever the achievements of our businesses are recognised, and in that respect 2019 was a good year.

Guernsey Dairy, Guernsey Post, Guernsey Electricity and Guernsey Water all scored highly in a survey where islanders were asked to rate 75 leading local companies. They all ranked among the top 20% of businesses in the survey - alongside the likes of Waitrose, Specsavers, and M&S. As well as being placed in the top three overall, Guernsey Post was also the local company that islanders trust the most.

Similarly, an independent audit of Guernsey Water's customer service saw it again significantly outperform the benchmark for UK utilities and for all sectors. And readers of consumer magazine "Which!" again voted Aurigny best short haul airline - a further testament to the company's 'Get you home' philosophy.

STSB began as a brand new body this term, and was not properly established until the end of 2016. Since then, the important groundwork has been done, and while there is room to improve, that should not disguise the considerable progress that has been made.

I am confident STSB will continue to evolve in the next States term, and continue working in the best long-term interests of islanders.

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