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Statement by the President of the States' Trading Supervisory Board

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Wednesday 29 June 2022

General Update

In preparing this update we knew it would follow the debates on the Government Work Plan and States Accounts and so decided to keep to subjects we felt were less likely to have already been discussed in those two debates.

One development that will not have escaped the Assembly's attention is the recent approval of the Guernsey Electricity tariff application - the first such increase in local tariffs since 2012. We appreciate the timing is not ideal, given that we share the concerns I am sure all Members have regarding the cost of living pressures that many islanders will currently be feeling. Much of that is being driven by external pressures.

But in this instance, external pressures are not the driver for the increase in tariffs. We are actually very fortunate that the current supply contract with EdF has sheltered islanders from the sudden, massive hikes in energy bills affecting homes in the UK and elsewhere.

Even before the forthcoming price cap rise, electricity tariffs in the UK were already somewhere in the order of one third higher than here in Guernsey.

What we cannot avoid however is the much-needed investment in the core distribution network, which this tariff increase will help fund. That is not only to maintain current supplies but to also prepare for the additional electricity demand that is anticipated as we transition towards a lower carbon future.

This has not been helped by the fact there had been no full tariff review for the past 10 years. Gradual increases might have avoided the need for an above RPI rise now, but Guernsey Electricity is having to play catch up. In real terms, prices are significantly lower than they were 10 years ago. 

I am pleased this Assembly finally addressed the regulatory void that prevented this happening sooner, by agreeing the interim arrangement under which STSB is responsible for approving tariff applications. I can assure Members that we approached that task with all the due rigour and challenge that we promised, and Guernsey Electricity's application was fully scrutinised and assessed against all the relevant policies and objectives set by the States.

Action by this Assembly has therefore helped address one area where there was a policy vacuum that was not helping STSB fulfil its role. We hope the next step will be to agree an Electricity Strategy when it is presented to the States later this year by the Committee for the Environment & Infrastructure.

That will then provide the clarity and certainty that businesses require to make the investment that will assist and hopefully accelerate that low carbon transition.  That includes, but is by no means limited to, Guernsey Electricity.

Moving to the harbours, the appearance of a large jack-up barge and drilling rig in St Peter Port in March did not go unnoticed. It was here to carry out part of the survey of the seabed and underlying rock within the harbour, as we investigate options for a new leisure marina in the pool area, which came out of the Future Harbour Requirement debate last June.

A lot of work has been going on since then, most of which is far less visible. It has included engaging with the local leisure marine sector and boatowners; evaluating various technical design options; and carrying out a wider demand survey, to assess the potential economic opportunities that a new marina could bring, and how these can be optimised.

We have been tasked with returning to the States with a delivery plan for any proposed development. 

As things currently stand, progress could be slow given the absence of the local planning briefs for the Harbour Action Areas, which are at least 18 months away. However having had discussions with the Development & Planning Authority, we have identified a way that potentially would enable a planning application for a pool marina to be considered before then. 

It will require some additional public consultation ahead of any States debate, which was not part of the original plan. Nevertheless we are confident we can progress that while the technical work is being carried out, but that additional requirements will delay our return to the States slightly.

The project team were on course to publish proposals by the end of this year, but we expect this now to be the first quarter of 2023. However by taking things a little more slowly may provide an opportunity to deliver results more quickly. 

On a related harbour theme, we were obviously disappointed last year when the debate on the Future Harbour Requirements did not provide a clear direction on the island's long-term port facilities, which would have enabled the local planning briefs, among other things, to progress before now.

Our harbours continue to face every day operational challenges, and investment opportunities are potentially being missed while there is no clear direction on future port development.  The STSB is therefore pleased that the Policy & Resources Committee has indicated that it plans to return to the Assembly with proposals in the near future, which hopefully will provide greater clarity.

Another project that has stalled is the development of a future inert waste site. The Committee for the Environment & Infrastructure has advised that the planning inquiry for Longue Hougue South is now on hold, pending the outcome of a debate next year on potential future use of Les Vardes Quarry.

Guernsey Water is currently updating the Water Resources and Drought Management Plan, with a view to providing recommendations to the Committee for the Environment & Infrastructure by early 2023.

We are awaiting further direction from Environment & Infrastructure. In the meantime, preparations are being made to stockpile inert waste at Longue Hougue once the current land reclamation site is complete, which will expect to be around the end of next year.

The introduction of a two-tier gate fee at the start of 2022 has provided further encouragement to the construction industry to ensure good separation of material, to help minimise inputs into Longue Hougue. These moves will buy some time, but a decision over a long-term future site, which could take some years to deliver, is now a matter of urgency. We therefore very much hope this will be resolved by the Assembly in early 2023. 

When I last updated the Assembly, in March last year, the island had only recently emerged from the second Covid 19 lockdown. While many sectors of the local economy had been relatively quick to recover from the first and second waves, the impact of the global pandemic was still being keenly felt by Aurigny - as well Guernsey Ports. 

In 2021, passenger numbers through the ports were less than 30% of their pre-Covid levels. However throughout the pandemic, the airline remained ready to restore the Bailiwick's air connectivity as soon as conditions allowed. 

Unfortunately air travel at the start of 2022 was further impacted by Omicron wave, during which the island experienced peak infection rates. Passenger movements through Guernsey Airport in the first quarter were therefore a third down on pre-pandemic levels, yet Aurigny still managed a near 20% reduction in losses compared to the same period in 2019.  That was achieved through cost control and fleet optimisation efficiencies.

The airline subsequently saw a good recovery in the second quarter, realising its first April profit in more than a decade, with 12% more bookings than in 2019. 

The improvement in passenger numbers has continued and Aurigny expects to deliver its first quarterly profit in more than a decade in quarter 2, while managing to keep fare increases to below inflation thus far in 2022.

Aurigny will this year serve more destinations than ever before, as it continues to fill the gap left by the demise of FlyBE. It will continue to offer European weekend breaks and seek to further expand its network, through the newly announced partnership with British Airways and further airline partnerships to follow, to enhance our air links and providing more opportunities for travel to and from the Bailiwick for islanders and visitors alike. 

The airline's financial performance is showing significant improvement compared to pre-pandemic levels. At the half-year point, despitethe impact of COVID at the start of 2022 and ongoing high oil price, Aurigny remains on-track to achieve its budget for this year, and isconfident of achieving break-even next year. 

Finally, I would like to reflect on one particular challenge which is impacting on our trading businesses. This relates to the very tight labour pool, which has affected the ability of a number of our operations to recruit and retain staff, particularly in skilled trades. I referred earlier to external pressure whicoph the island is not immune to, and I have no doubt that Brexit has had some impact. So too has the strong upturn in local construction, post-Covid, which has left too many companies competing for too few staff.  This is presenting everyday challenges in a number of areas, which we are having to work very hard to overcome. 

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