To ask the Scottish Executive how it plans to take forward its proposals to tender the Clyde and Hebrides ferry service currently operated by Caledonian MacBrayne.

I have today published, for consultation, the draft Invitation to Tender (ITT), which includes the service specification, for the Clyde and Hebrides ferry services currently operated by Caledonian MacBrayne. This sets out our proposals for tendering. I have also published an accompanying consultation document Proposals for Tendering Clyde and Hebrides Ferry Services which explains the principles adopted in the service specification and seeks views on options. At the heart of these proposals is our commitment to protecting existing levels of fares and the level of services and ensuring that safety is a priority at all times. I believe that the service specification achieves this. The key elements are:

The network will be tendered as a whole. The European Commission took account of the case we made for this and the way is now clear for the Executive to proceed on this basis. Overwhelming support was expressed for this option in response to the previous consultation Delivering Lifeline Ferry Services. This will maximise service reliability for the communities served, simplify the process for management of vessels and provide economies of scale in company management, safety and quality systems. It also avoids cherry picking of routes and facilitates integrated transport through co-ordinated timetabling of services.

Delivering Lifeline Ferry Services explained that the EC rules ruled out the possibility of subsidy for mainland-to-mainland routes. Through our representations, we have been able make inroads to secure these routes. I am delighted to confirm that both of the mainland-to-mainland routes in the current Undertaking (Gourock to Dunoon and Tarbert to Portavadie) will be included in the single bundle. This is based on the European Commission's assessment that the land-based routes do not provide viable alternatives. This is welcome news and will mean that subsidy for these services can continue.

We also explained that Public Service Obligations (PSOs) can be imposed for scheduled services to ports serving peripheral areas or thinly served routes considered vital only where the operation of market forces would not ensure a sufficient service level. Nevertheless, we decided to make strong representations for the continuation of the approved Gourock to Dunoon passenger service. This is consistent with our integrated transport policies. However, following discussions with the Commission we have concluded that the service for Gourock to Dunoon should be restricted to a passenger only service to comply with EC rules for PSOs). This is because the case for a vehicle service is undermined by the existence of an unsubsidised private sector competitor nearby. We are pleased that the Commission accepted the arguments for a continued passenger only service which will carry passengers between the railhead at Gourock and Dunoon.

New services - We undertook to review the Out of Undertaking services and I am pleased to announce that we will expand the services to include two services that are currently outwith the Undertaking. These are:

Mallaig to Armadale winter vehicle service, and

Tarbert to Portavadie winter service.

I also propose further new services as follows:

Sound of Barra and Sound of Harris - The Executive recently announced funding for a new CalMac ferry for the Sound of Harris route. This will allow a vessel to be deployed to provide a new service for the Sound of Barra and also enhanced services for the Sound of Harris.

Kilchoan to Tobermory winter passenger service - This service is currently provided by the local community with financial support from various sponsors including the local authorities. The current winter service is a passenger only service and it is proposed that it will remain so with a vehicle service provided during the summer (as now). This will ensure vital links between Tobermory and Kilchoan are secured.

Enhanced Oban services - a new vessel is being built to serve the Mallaig to Armadale route. This releases a third major vessel (MV Lord of the Isles) to enhance services from Oban to Mull, Colonsay, Coll, Tiree, Lochboisdale, Castlebay and Islay during the summer.

Following discussions with the Commission, I can confirm that we intend to establish a publicly owned vessel owning company (VesCo). This will ensure effective utilisation of the existing fleet, offer service reliability through this period of change and guarantee the availability of vessels for subsequent operating contracts. The operator will be bound to the VesCo fleet and the vessels will be chartered/leased on a bareboat basis at commercial rates. This is in line with the EC rules that prohibit grant in respect of vessel replacement.

Our original proposals had allowed scope for operators to bring their own vessel solutions where we had identified a need for new vessels. However, we have concluded that VesCo should be regarded as the procurer of new vessels for the specified services and will also have a role in strategic planning. Decisions in relation to the vessel procurement programme for the first tendering period have yet to be taken in the context of the 2002 spending review but we plan to include these for bidders in the final service specification. There will be scope for operators to bring their own vessels to provide services over and above those specified if they wish. This will ensure that expansion of services would not be constrained by the size of VesCo’s fleet.

VesCo will be responsible for providing an operator of last resort function. VesCo may do this at its own hand or through a retainer arrangement with a ship management company. It will be an early priority of VesCo to investigate these options and make recommendations to ministers. Arrangements will be in place by the start of the first contract.

VesCo will also own CalMac's piers and harbours. The operator will be required, as VesCo's agent, to manage certain harbour functions currently provided by CalMac in return for management fees (although VesCo will still retain overall responsibility for delivering these functions through such an agreement). Ticketing offices, waiting rooms etc will be made available for lease by the operator. This ensures that all the "tools of the job" remain with VesCo and can be made available on a continuing basis to the first and subsequent operators. Operators will not be bound to these facilities since they may be able to deliver improvements and efficiencies.

Safety of passengers and crew is paramount. The Maritime and Coastguard Agency (MCA) is responsible for safety in relation to sea transport in UK waters. The core principle of the service specification is to ensure that bidders must comply with all MCA standards on all vessels at all times. The successful bidder will be subject to the same stringent safety standards that CalMac and other operators already have to comply with. The VesCo's contracts with the successful bidder will set out detailed maintenance responsibilities in respect of vessels. The key principle will be that the operator is responsible for vessel maintenance. This will ensure that there is no confusion in relation to safety issues.

The Draft Invitation to Tender encompasses the above decisions. In addition, key proposals and principles include the following.

Protecting levels of services. We gave a commitment to protect existing levels of service. All services currently within Caledonian MacBrayne’s Undertaking will be maintained. Following discussions with initial consultees the service specification adopts a prescriptive approach to timetables. It requires the operator as a minimum to provide the summer and winter arrangements as currently operated by CalMac. However, it is not the intention to set these arrangements in stone and, as now, there will be the possibility for changes to be approved during the contract provided the operator has agreed this with the local communities concerned through the consultative machinery. This is in line with the current system. The timetables prescribed will be the most recent at the time the service specification is finalised.

Protecting fares - I propose that, for the service specification, CalMac’s fares are taken as the starting point in setting maximum fares and that these would be adjusted annually to reflect changes in the Retail Price Index over the contract period. The operator will be required to offer the full range of fares for passengers and vehicles as currently set out in the timetables. Concessionary fares will be continued as detailed in the draft service specification and operators will be expected to continue arrangements for local authority funded concessionary schemes. The operator will also be expected to continue special charging arrangements as detailed in the service specification. As for timetables, the fares prescribed will be based on the most recent available at the time the service specification is finalised. We propose to carry out further research on fares to inform the approach for the second tendering period.

Branding - it is proposed that the operator should be required to operate the vessels under the existing CalMac livery. This will ensure continuity of brand and assist with the longer term marketing of the Highlands and Islands. However, there would be flexibility for operators to be identified with the operation of services in literature and websites. It is also proposed that where operators bring their own vessels to provide extra services over and above those specified they be allowed to sail those under their own livery.

Performance regime - there will be a robust performance regime which will set tough targets for operators and safeguard standards of reliability and punctuality of services. This will operate on a route by route basis (so that no one route can be operated at the expense of others). The operator will also be required to develop a User's Charter which will set down standards in relation to a number of areas such as conduct of staff, standard of on-board facilities, standard of cleanliness and the complaints procedures.

I am keen to promote good consultative arrangements within the new framework. I invited the Highlands and Islands Strategic Partnership to consider these and to make recommendations. These are presently being considered and we intend to consult on the way forward separately later this year. In the meantime the draft service specification sets out the current arrangements and requires the contractor to meet these as a minimum. This will be amended in due course if appropriate.

Turning to the timescale for tendering, the work involved in restructuring CalMac is complex. It seems unlikely that VesCo would be in a position to liaise with tenderers until at least early next year. Based on this I anticipate that the tendering process will be completed in early 2004 with contract handover later that year. However, this may be subject to change depending on progress with restructuring. I believe that it is important to take the time necessary to ensure a smooth transition to the new framework.

The consultation period will close on 27 September. I hope to see a full response from all those with an interest. In the meantime I will be publishing a Prior Information Notice in the Official Journal of the European Commission. This is not part of the formal tendering process but will alert operators to proposals and ensure that they can take part in the consultative process too. I will give close consideration to the responses to the consultation in making decisions about the final Invitation to Tender.