Sea Transport - revised policy (P.24-2006) – comments

STATES OF JERSEY

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SEA TRANSPORT: REVISED POLICY (P.24/2006) – COMMENTS

Presented to the States on 28th March 2006 by the Minister for Economic Development

STATES GREFFE

COMMENTS

Summary

The Minister has considered the sea transport revised policy and agrees with the majority of what the proposition is asking for –

(a ) A g reed;

(b ) (i ) n o t agreed as drafted, see detailed comments below; (i i) a g r e ed;

(i ii ) a g r e ed;

(i v ) a g r ee d, see note (a), (b) and (e) below;

(v ) a g r ee d;

(v i ) a g r ee d;

(c ) n o t agreed, see detailed comments below. Background

The States were advised earlier this year that it was the intention to review sea transport policy as a result of the changing market situation towards the end of 2005. That review has been completed and the revised policy on sea transport is attached as an Appendix to this report.

The development of Service Level Agreements is now in train and covers most of what the proposition seeks. Where this is not the case, it will be because the policy line is that Service Level Agreements should not be overly prescriptive. The current approach includes the following core elements –

(a ) S e tting out the demand that must be met in the relevant market (passengers, vehicles, cars etc.)

over the course of the year.

(b  ) T h at vessels must be capable of satisfying the profiled demand and be of a good standard and

meeting the appropriate, domestic and international regulations and standards.

(c ) U n less otherwise agreed with the Minister for Economic Development to operate a year-round

daily return service.

( d ) R  equirement  to  report  on  the  operating  and  technical  performance  of  the  service  and  on

information required to monitor prices and yields.

( e) R e quirement to have arrangements in place so that the service does not experience significant

disruption.

(f ) R e quirement to provide information on fares and fare increases, provision for arbitration where

increases appear unreasonable.

(g ) R e quirement to offer equivalent standard fares whether traffic originates in the Channel Islands,

the U.K. or France.

(h ) T h e provision for promotional fares to encourage traffic growth.

(i ) C  u stomer care provisions regarding compensation arrangements for delays and denied boarding,

and the requirement to meet the ISO quality model in respect of the carriage of passengers, which includes a complaints procedure.

(j ) C i r cumstances under which the Service Level Agreement can be terminated.

Detailed comments

Part  (a) of the proposition is already being dealt with as set out above and a number of announcements have been made publicly and to the States about this.

Part (b)(i): There is an important difference between the"scheduled fare" and the "promotional fare" and these important differences are not defined in the Report. There is no problem in approving the scheduled fares – this is done effectively now for the northern route – and those fares are publicly available. The promotional or incentive fares will vary according to market conditions and commercial judgment. As a general rule a SLA should seek to provide for the setting of service standards while at the same time allowing for a commercial response to market conditions.

Part  (b)(ii): The operator would be expected to organise its services around a minimum service requirement.

Part  (b)(iii):The important point is that the type and capacity of vessels are capable of meeting the profiled demand.

Part  (b)(iv) is dealt with by paragraphs (a), (b) and (e) under"Background". Part  (b)(v) is covered in the draft SLA.

Part  (b)(vi): Financial penalties are included in the SLA at present in relation to delays and denied boarding, material breaches are covered as potential triggers for a termination of the Service Level Agreement.

Part  (c): If this part of the Proposition had asked to take steps to identify additional operators on the routes to ensure that the Island does not remain wholly dependent on a single operating company, than this would have been agreed. However, the requirement to license additional operators ought to be addressed in terms of the position for 2007/2008 and the position for 2009 and beyond. In the short term there is nothing to stop a potential operator putting forward proposals because there is no exclusivity. For the period beyond 1st January 2009, a joint approach to ferry services to the Channel Islands will be developed with Guernsey to determine what will be in the best long-term interests for the Islands and their residents. It remains to be seen whether those interests will be best served by one operator who is able to gain networking benefits or whether the greater benefit would be obtained by encouraging competition. This is an issue that the Jersey and Guernsey authorities will need to address over the next year in anticipation of the requirements for 2009 and beyond. It would not be helpful at this stage if the avenues available to the Island are restricted.

Additional Comments on the Report

On pricing there is no reference to the JCRA. This is surprising as it has indicated that it would wish to see the draft SLAs to ensure that they are consistent with the Competition Law. The JCRA is also empowered to tackle any evidence of the abuse of a market position.

The Report states –

" It   is  now essential that the Minister recognizes that both the southern and northern routes require an urgent review now, by way of re-examining the risk assessment of relying on one operator to operate two routes. If that operator fails for whatever reason, the Island will be left with grave social consequences to the community, or alternatively the States will run the risk of predatory demands or could be subject to commercial blackmail."

However, there is no reason at present to believe that the existing operator will fail, or that there would not be another operator interested in taking over the route network provided, as the current operator advises, that the network presents a commercially viable opportunity. Condor has continued to demonstrate their commitment to servicing the Islands and discussions with that operator have been both productive and cooperative during the time of uncertainty for the travelling public.

Condor Ferries has advised us that the promotion pricing of £100 for a car plus 2 passengers return to St. Malo (for sailings throughout the year) was introduced by Emeraude Ferries in January 2005. Condor responded with the promotion of similar fares on a limited basis in April 2005.

APPENDIX

Minister for Economic Development Air and Sea Transport Policy

1. B a c kground

1. T h e EconomicDevelopmentCommittee approved its "Future AirandSeaTransportPolicy" in November 2005 andrecommended that the policy should be presented to the Minister for EconomicDevelopment for progression.
2. T h e policy covered air andsea transport servicesbut the area that has proved most contentious is that of sea transport. In contrast, the maincomment in relation to air transport policy was that some would like to retain the Air Transport Permits (Jersey) Law as a form of insurance in theevent that it is required in the future. The policy related to air transport is set out at the end of this report.
3. In December2005 the market situation with regard to sea transport services changed.Emeraude Jersey Ferries withdrew its service from the Jersey/ St.  Malo route and this meant that therewas a need to review the policyoptions available in relation tosea transport.
4. T h e review ofseatransport policy hasnow been completed and the Council ofMinistershas indicated its support forthe policy, whichisoutlinedbelow, at its February meeting.

2. K  ey considerations in policy choice

2.1 T h e approach to sea transport policy has taken into account a number of key factors – (i ) T h e Economic Development Committee's policy report of 8th November 2005. (i i) T h e Strategic Plan 2005 – 2010 adopted by the States. (i ii ) T h e Economic Growth Plan adopted by the States.

(i v ) T h e Oxera report on the Viability of Ferry Services to and from the Island of Jersey, July 2004.

(v ) S u bmissions by stakeholders involved in the delivery of sea transport services or dependent on

them for commerce and travel.

(v i ) T h e existence of agreements in place on routes serving the Channel Islands until the end of 2006.

(v i i) T he existence of an agreement between Guernsey and Condor Ferries on the northern route which

does not expire until the end of 2008.

(v i ii ) T he legal and regulatory framework governing sea transport services. (i x ) T h e market conditions and commercial realities facing ferry operators. (x ) T h e potential role of the Jersey Competition Regulatory Authority.

(x i ) V  essels, used by operators, which currently bundle passenger, passenger and accompanied vehicle

and freight services together.

(x i i) T he history of sea transport services on routes serving the Islands.

3. C  u rrentsituation

1. Southern route:NoServiceLevelAgreement(SLA) exists on the Jersey/ St.  Malo route.
2. Northern route: The ServiceLevelAgreement with Condor Ferries on theJersey/U.K. route expires at the endof 2006.
3. Guernsey:Guernsey's Service LevelAgreement with Condor Ferries between the Channel Islands and the U.K. expires attheend of 2008 and this is anexclusiveagreement.
4. T h e possibilityof joining the Guernsey and Jersey markets is likely to be attractive to ferry operators asit is likely to strengthen the commercial viability of routes serving the ChannelIslands.It is therefore considered that there would be benefit from closerco-operation between the Islands to secure sufficient and reliable services that meet the needsof the travelling public.
5. O n the northern route, the different expiry dates related to the Guernsey and Jersey Service Level Agreements means thereis a need for a managedapproachin the shorttomediumterm.If a shared view regarding the nature and provision of ferry servicesto the Channel Islands canbe reached with Guernsey then both Islands would be able to join togethertosecuretheservicesthe Islands need from 2009.
6. C o mpetitionon the southernroutein the combined passenger and car carrying ferry market has existed for sometime. In the caseof passengers Condor Ferries hasoperated the routeformore than 40 years.

4. S e a transport policy approach and implementation

1. T h e policy aim mustbe to secure year round,long-term, reliable, robust and reasonably priced services of sufficient quality andfrequency.
2. H a ving regard to the considerations in policy choicementioned earlier, the approachmost likely to achieve the policy aim will be one whichbalances the level of competitive pressureon operators with securing long term, reliable year round services. Inorder to achieve this key elements of the policydesign include –

(i ) N  o operator should obtain ramp access unless it has a Service Level Agreement.

(i i) S e rvice Level Agreements should be designed to focus on core requirements and should not limit

an operator's ability to respond to market forces; Service level Agreements will not have provisions that act as unnecessary barriers to market entry by other operators, except where such provisions are necessary in relation to core requirements such as the year round service provision. An important requirement for Service Level Agreements will be to make better provision for the needs of the service's users.

(i ii ) S e rvice Level Agreements will be issued on a non-exclusive basis.

(i v ) T h e JCRA should have the appropriate powers to prevent market abuse by the shipping companies

or the harbour authorities.

(v ) T h e Island's interests are likely to be best served if routes are commercially viable.

(v i ) A  ll routes will have a service level agreement in place in the short to medium term and will be

covered by long-term service level agreements from 1st January 2009.

(v i i) T he domestic regulatory framework governing the access to ramps at harbours will be amended to

better underpin the policy approach. Applications for ramp access in the longer term should be considered on their merits taking into account criteria set by the Minister for Economic Development in addition to Harbour operational and safety considerations.

(v i ii ) S hould the option to test the market for the provision of ferry services in the longer term be taken

up in the form of a tender exercise then this would be conducted as a full, open and transparent exercise similar to

that conducted for the provision of ferry services in 1998 on the northern route.

5. I m  plementation

1. S o gestran/Emeraudeto confirm their intentions so that uncertainty surrounding peak seasonpassenger services are removed.
2. A Service LevelAgreement will beputinplace as soon aspossibleonthe Jersey/St. Maloroute for the period to the end of2008.
3. A new service level agreement will beput in place on the northern routefor2007 and 2008.
4. F o r the period beyond 1st January 2009 a jointapproach to ferry services to theChannel Islands will be developed with Guernsey.
5. T h e option will be retained to test the marketfor the provision offerryservices from 1st January2009, when itbecomespossible to negotiateserviceson the basis of the Channel Islands route network as a whole.
6. S e rviceLevelAgreementson the southernroute for remainderof this yearthrough2007-2008andonthe northern routeforthe period 2007 and 2008 are currently being drafted.
7. In this period any operatorwhoisprepared to be party tonegotiationsand to bebound by a Service Level Agreement will be able to operate roll-on roll-off freight, passenger and accompanied vehicle and passenger services on the routes.

6. G en eral

1. T h e policy approachincludes –
2. R e viewing freight market competition and service provision issuesin general to assist the design oflong- term service level agreements tobeimplemented from 2009.The current Oxerastudy into trade links with France and the work being undertaken in Normandy, related to the Cherbourg freight hub, will be important elements of this review.
3. E s tablishing a consumergroupto provide a channel for consumerconcernsabout ferry services and to assist the design of service level agreements.
4. D e veloping andamending the regulatory model to better underpin the policy approach.

7. M  o nitoring Service Level Agreementcompliance

7.1 C o mpliance with the existing Service Level Agreement by the operator on the northern route is currently monitored by my Department. The requirement for monitoring compliance with Service Level Agreements will be ongoing. In addition, the scope of monitoring will increase as a result of the introduction of Service Level Agreements for the southern route, or in the event that other operators enter the market.

8. A  ir Transport

1. T h e continuationof the present "open skies" policy for air transportservices will be in the best interests of the Island and oftheusers of these services.
2. T h e AirTransportPermits(Jersey) Law 1998, as amended, should be repealed.

3. P re ssure should continue to be maintained on the UnitedKingdomGovernmentand the European Union Commission to obtain the required safeguards on slot allocation to provide for air services between the Island and the Londonhub airports.
4. T h e Airport shouldbe run on a commercialbasis with support from thetaxpayer limited to making a contribution to the cost of the essential major infrastructure investments (e.g. runwayresurfacingand concrete replacementwheretheAirport is required topursuenon-commercial actions on the groundsof the best interests of the community).
5. T h e JCRAshouldhavetheappropriatepowersto prevent any marketabuseby the airlinesortheAirport.