ScotGov pulls plug on lifeline subsidy of state ferry fiasco firm

The Herald Scotland

a day ago

The transport secretary Fiona Hyslop confirmed a "substantial subsidy" was needed to allow it to get a direct uncontested contract to build seven new ferries and secure its future.
But she has admitted in correspondence with former community safety minister Ash Regan that that subsidy was not justified and the contract went to an overseas firm.
Ms Regan has raised concerns that it was "not the direct award that's the issue it's the unwillingness to put public money behind a public asset".
The Scottish Government denied on Thursday evening that any funding had been halted.
Ferguson Marine has been dogged with issues with the delivery of lifeline ferries Glen Sannox and Glen Rosa which were due online in the first half of 2018 when it was under the control of tycoon Jim McColl.
The last estimates suggest the costs of delivery of the vessels for CalMac will have soared to more than five times the original £97m cost.
The shipyard firm which currently employs over 400 staff including over 100 sub-contractors was brought under state control by the Scottish Government at the end of 2019 following its financial collapse under the control of Mr McColl as a row erupted over long delays and mounting costs over the delivery of the vessels.
Nicola Sturgeon on a past visit to the yard (Image: PA)
The yard's business plan to 2029 assumed that the Scottish Government would sanction a direct award of the small vessel replacement programme. It was an integral part of a plan to deliver a "sustainable, profitable, efficient and competitive yard".
After it was decided that the £175m contract would go to a competitive tender, Caledonian Maritime Assets Limited (CMAL), the state-controlled ports owner and ferry procurer declared in March that the job to build seven new loch-class electric ferries would go to Poland.
It previously awarded two other ferry contracts worth to £220m to Cemre Marin Endustri A.S (Turkey) - with Ferguson Marine again losing out.
The board of the loss-making Scottish Government-owned ferry fiasco shipyard firm has admitted that questions over further financial support from ministers was casting a "significant doubt" on its ability to continue operations and that the contact for the seven ferries was seen as crucial.
Meanwhile the Scottish Government said there was an "intention" to give a direct award of a £3.7bn contract to run the Clyde and Hebrides lifeline ferry service from October 1 after a due diligence exercise concluded that there was no legal issue in terms of state aid rules that would prevent that.
Ms Hyslop was asked what assessment was undertaken that resulted in it determining that state-owned ferry operator CalMac should be directly awarded the Clyde & Hebrides Ferry Services (CHFS) contract without an open tender process while stating that doing the same for Ferguson Marine with the small ferries contract was presenting a legal risk.
She replied that there was "no financial, operational or legal impediment" to implementing a direct award to CalMac.
And she added: "Shipbuilding is a competitive global market and a designated sensitive sector under the UK Subsidy Control Act.
"For SVRP [the Small Vessel Replacement Programme] it was assessed that a substantial subsidy would have been required to support direct award of the Phase 1 contract to Fergusons, which we did not consider would be capable of being justified.
"Given no clear path to subsidy control compliance and the risks of legal challenge, ministers concluded that directly awarding the Phase 1 contract would have been likely to lead to the worst of both worlds - a delay in adding new ferries to the network and the yard ultimately not securing any work from the programme."
Her position raises questions over whether it will can win the second phase of the ferry-building programme which involves building three further small ferries.
Ms Regan said: ' If the Scottish Government wants to protect commercial shipbuilding then they will need to invest in Scotland to ensure that Scottish ferries are built in Scotland - not Turkey or Poland.
"The minister says that directly awarding orders to a Scottish shipyard would've resulted in the worst of both worlds, but right now we already have the worst of both worlds - a nationalised shipyard without government orders that can't win private contracts because of mismanagement at the top.
"The response from the Government has revealed that it's not direct award that's the issue it's the unwillingness to put public money behind a public asset.
"The longer this saga goes on, and the government fails to invest in its own shipyard, the less likely it is that there will be a future that ensures Scotland retains a ferry building capacity and that can only mean Scottish ministers being willing to pull the plug on the lower Clyde's last commercial shipyard. '
READ MORE by Martin Williams:
Why did Scots ministers support award of £395m in ferry contracts to firms abroad
Why does ScotGov keep ploughing public money into the ferry fiasco firm?
ScotGov raises 'doubt' on CalMac getting new ferry contract from October
'People going bananas': New ferry fiasco hits vital island supplies
'Mismanagement': Public cost of Scots ferry fiasco firm hits £750m amidst overspends
The completion of due diligence to confirm vital investment funds worth £14.2m for the yard has already has been held up for nearly a year, even though the money has technically been pencilled in to be awarded over two years.
The Port Glasgow yard, which was featured in a Standing up for Scotland SNP video fronted by former First Minister Nicola Sturgeon, is also not certain to get the money it needs to complete a lifeline island vessel at the centre of a "new farce" over soaring delays and costs.
The £35m extra public costs for Glen Rosa being asked for by Ferguson Marine is to become subject to further 'due diligence' probing by ministers before a decision is made on whether the extra money will be provided.
Glen Rosa was expected to be taking passengers in September - but now state-owned Ferguson Marine has admitted the full sign off and deliver will not be till the summer of next year - between April and July.
The Scottish Government had already carried out a 'due diligence' exercise over the provision of a direct uncontested contract to Ferguson Marine to build the ferries but minister previously said it was rejected as it was felt it would be subject to a state aid legal challenge.
Ferguson Marine's business plan which assumed that there would be a direct award was approved and submitted in June, last year before being verbally accepted by ministers the following month, when Ms Forbes publicly stated an intention to invest £14.2m to upgrade the yard. The plan was based on the yard remaining under public ownership for at least the next five years.
Concerns over the funding of the yard come after the Herald revealed that the public cost of Ferguson Marine had hit up to £750m. A £69m overspend in 2023/24 alone - with costs totalling £131m was said to be in the main due to huge slump in the value of the two fiasco ferries.
Financial statements up to 2025/26 had revealed that budgets set by the Scottish Government for Ferguson Marine were overspent to the tune of £210m in the first five years since it was nationalised at the end of 2019 as it attempted to deliver two long-delayed and wildly over-budget lifeline ferries.
The costs so far of the beleaguered Inverclyde shipyard firm - which includes sums to cover running costs, wages and a dramatic slump in the value of the stricken vessels - soared to just nearly £710m before the board last month sought £35m more public money from the Scottish Government because of further rises in costs to deliver Glen Rosa, the second of the two ferries.
The Ferguson Marine bill is enough to cover the cost of 13 ferries of the type currently being built for Scotland at the Cemre Marin Endustri shipyard in Turkey.
Kate Forbes at Ferguson Marine (Image: Andrew Milligan) Ms Forbes has consistently told MSPs that the £14.2m support package over two years to help secure Ferguson Marine's future was in place and in March told MSPs that "hundreds of jobs have been protected only because of the actions of the Government".
In March she told MSPs that there needed to be support for Ferguson Marine to be as competitive as possible so that it is able to secure work through a fair and open procurement process and that "that is the reason for the £14.2m investment"
She further told them: "The bottom line is that we have agreed to invest £14.2 million in equipment for the yard so that it can compete on a global basis."
But officials had consistently confirmed to the Herald that the two-year investment remains subject to the kind of due diligence tests that stopped the yard from directly getting the small vessels ferry contract.
That due diligence investigation, which involves passing detailed legal analysis and independent financial and commercial assessments, was supposed to be complete by the Autumn of last year.
The board of the loss-making Scottish Government-owned firm has admitted that questions over further financial support from ministers is casting a "significant doubt" on its ability to continue operations as losses incurred by Ferguson Marine have totalled over £2.7m in the last two full years.
Ferguson Marine has a 'letter of comfort' which says that "it is our present policy, including with active consideration of the business plan budget and future work of the group, subject to the approval of the Scottish Parliament and in so far as permitted by applicable laws and withing agreed budgets for at least a period of 12 months...to continue to provide support to the group".
Despite that, the board in financial papers acknowledged that there [is] uncertainty surrounding the future levels of support required....including due diligence surrounding letters of assurance and investment in the yard [that] indicate a material uncertainty related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern and, that it may be unable to realise its assets and discharge its liabilities in the normal course of business."
Ferguson Marine (Port Glasgow) which made a net loss of £1.3m in 2022/23 had previously been concerned about the risks to the business and pointed to a failure to get a committed investment at that point of £25m to support future work at the Inverclyde after the delivery of Glen Sannox and Glen Rosa.
Ousted Ferguson Marine chief executive David Tydeman has indicated that even the reduced £14.2m over two year would not itself be enough.
Under his leadership, the shipyard which relies on public funds, had stated that a failure to get a committed investment of £25m to support future work had cast "significant doubt" on its ability to continue.
Investment was required for a vital new plating line and software to raise productivity and help it compete for future work and it was hoped there would be delivery by December, last year. But that hasn't happened.
At the time Ferguson Marine admitted it was not as competitive as other yards that have modern plating lines and modern facilities.
As the plating line cannot be installed for nearly two years the yard would not get decent productivity until 2027, even if ordered now, which makes pricing for future work harder.
Mr Tydeman was fired on March 26, last year after a tumultuous two years at the helm of the nationalised shipyard after he told ministers there would be even further delays to Glen Sannox and Glen Rosa.
Ferguson Marine declined to comment.
The Scottish Government was approached for comment at lunchtime on Wednesday but did not respond until 6.41pm on Thursday
A spokesman said: "Any reports that funding to the Ferguson Marine shipyard has been halted is completely untrue. Scottish Government funding for the yard is set out in the 2025/26 Scottish budget.
"As previously set out, the Scottish Government stands ready to invest up to £14.2 million over two years, subject to due diligence and commercial standards being met, to help enhance yard infrastructure and deliver productivity improvements to help it win more work."