Thursday, 11 October 2012

Harbouring Heritage?

Harbours and Airports are both due to be incorporated. The States voted 42 to 5, with 1 abstention to pass the proposition "to approve the incorporation of Jersey Airport and Jersey Harbours as a single limited company wholly owned by the States of Jersey, to be known as 'Ports of Jersey' as set out in the attached Report"

The preamble is a very strange document, and I'm not wholly sure it makes sense.

"The primary goal in incorporating Jersey Harbours and Jersey Airport is to enable them to continue to be the provider of essential, lifeline public services to the Island, but to do so in a commercial and sustainable manner that will improve services for customers and generate a positive return to the States."

How are they to do this? Perhaps it came out in the debate, but it seems obvious that to raise extra money, they have to charge more. The suggestion, however, is that "efficiencies" - what a wonderful word - will also enable the harbours and airports to run much better than at present. Or that other word "diversification" comes into play.

We have, for instance, this paragraph:

"Attempts to apply the commercial disciplines referred to above without an incorporated structure and the governance processes that go with it have not, to date, had an effective impact, because management and control is too dissipated between various components of the States, such that commercial focus and consistent decisive action is often inhibited."

What this appears to be saying is that the present structure simply won't work well, and as a commercial entity, it will. This suggests that the present management structure is not fit for purpose - and indeed we are told "If the Harbours and Airport businesses were to continue to operate as they did before 2011, they would be unable to meet capital requirements from current cash-flows."

But if that's true of the unincorporated structure, is it also true of the rest of the States? Is the hospital being run badly, because it is not subject to proper management disciplines? Or the education department? The list goes on. Why should just the harbours and airports have problems because "management and control is too dissipated between various components of the States"? Maybe other departments have a lack of "consistent decisive action" for exactly the same reasons. How is that to be addressed?

On the other hand, if it is possible to ensure that other departments can be run with consistency and decisive action, why is there a need to incorporate harbours and airports? Can't they be run properly too?

So the whole preamble to the proposition opens a can of worms regarding the management and structure of the States departments in general, perhaps the more so because those are not commercial in nature, so are less likely to be pulled into line by the need to respond to market forces.

What do the departments do? The preamble again lists what is done:

"In addition to commercial port activity, Jersey Harbours provides marinas and moorings for local boat-owners and visitors - from the "Five Gold Anchor" marinas in St. Helier to moorings in the outlying harbours. Jersey Airport provides a comprehensive network of commercial routes, facilities for business aviation and for local and visiting private aircraft. Jersey Airport is contracted, through the Minister for Economic Development, to provide air traffic control for the Channel Islands Control Zone on behalf of the French and UK authorities. Importantly, Jersey Harbours also provides the coastguard service for our territorial waters; this essential public service, which in most jurisdictions is funded by taxpayers, is funded in Jersey entirely from the Harbours' revenues."

A shadow board of directors has already been appointed to "drive their commercial development, efficiency and effectiveness, to the point where incorporation represented a credible proposition."

"As Trading Operations, all current investments are met from the Trading Funds rather than general taxation and as such, in order to avoid raising tariffs to cover such public interest burdens, the cost base must be reduced or business growth must be achieved."

But when it comes to anything concrete, we are just presented with all kinds of waffle.

"Optimise the use of the asset base to generate greater revenues and diversify our income stream."

"Incorporation will allow the Ports to leverage their asset base for development and growth in a way not possible under current arrangements. By deriving incremental revenues from the assets, revenue streams will be diversified, with consequently reduced reliance on fees and tariffs from commercial customers"

"A significant work-stream for the incorporation project is to establish how the business will be regulated. The appropriate oversight will be established in conjunction with the JCRA to ensure that the consumers of the facilities continue to derive value for money."

As we are also told the Harbour and Airport will now pay Parish rates, I do wonder where this wonderful "optimisation" and "work-stream" will take place and business growth achieved.

This part of the preamble is rife with the vaguest, most incoherent and empty phrases, management gobbledygook which is devoid of any concrete targets or explanations of where the money is coming from. I suspect, as I am sure my readers do, that despite all assurances to the contrary, it will be by raising prices, either for rent of assets or for the use of facilities. There is no indication of how "revenue streams will be diversified"; it is just stated. It is sheer "Yes Minister", and I'm surprised that so many States members voted in its favour. Maybe the promise of income coming back to the States was a sufficient lure.

The document has some pretty graphs, but really very little of substance. On of the facts of substance, however are the assets:

"All relevant land and buildings owned by the public and under the operational control of Jersey Harbours and Jersey Airport at the point of incorporation will be transferred to the Ports on a basis to be negotiated and agreed with the Minister for Treasury and Resources."

Now one of those assets is the land occupied by the Maritime Museum, and in 2009, when there was a funding crisis for Jersey Heritage, it emerged that the Maritime Museum had to pay harbours around two-thirds to three-quarters of the moneys it raised in admissions to the Harbours department for rent.

It would seem a good moment to reflect about whether it is wise to transfer an asset to an incorporated entity, which may will increase its revenue stream by taking higher rents from the Maritime Museum, which will lessen Jersey Heritage's ability to pay its way. The last time that occurred, there were temporary closures of sites.

It seems inconsistent that the States should be funding Jersey heritage on the one hand, and taking away that funding with the another entity, but that's how States budgeting works. Yet the Waterfront Enterprise Board was ceded land from the States, not having to pay rental, so there is a good precedent for moving that land from the property portfolio of Harbours not to the incorporated entity but to Jersey Heritage instead. After all, it is all States property. And here is a golden opportunity, which won't come again.


James said...

It would seem a good moment to reflect about whether it is wise to transfer an asset to an incorporated entity, which may will increase its revenue stream by taking higher rents from the Maritime Museum, which will lessen Jersey Heritage's ability to pay its way. The last time that occurred, there were temporary closures of sites.

Of course it's a good idea. It's a good idea because the States won't get any of the blame - all the bricks will be thrown at Heritage for "weak financial management". Trebles all round!!

TonyTheProf said...

Trebles all round!! You've been reading "Private Eye", young man!

Mark Forskitt said...

The fig leaf is something like: as an incorproarated entity they will be able to borrow money to fund capital spending , repairs etc.

There are two problems here. First, it implies the States could not do that. surely they could, but they they are wedded to the we have no debts mantra. This puts the debts at arms length of course, and allows the proclaimation to continue.

The second is the States should have been making proper provision for such things in their accounting. I dont think they have done that, at least before GAAP came into use a couple of years ago. I suspect the repair and maintenance, especially on the harbours has been rather less it should have been. (queue deputy St John!)

Im my mind puting such vital facilities (as the preamble admits they are) out of the control of the States is a madness of the highest order.

Tom Gruchy said...

Who might be negotiating the transfer of existing employeees to the new entities? Can I put forward the name of Deputy Lewis I don't mean it...