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OPINION: Why does Guernsey keep buying expensive bits of infrastructure?

OPINION: Why does Guernsey keep buying expensive bits of infrastructure?

Friday 19 May 2023

OPINION: Why does Guernsey keep buying expensive bits of infrastructure?

Friday 19 May 2023

With the Condor Islander on the way to the Channel Islands, Deputy Gavin St Pier weighs in on the purchase of the boat:

"ONE of the upsides of no longer being a decision maker is that I am not subject to the same sensitivities as those who are. Without access to any key information, I’m free to speculate without risk of being accused of leaking any confidential information. If you never had the cat, you can’t let it out of the bag.

"So why does Guernsey keep buying expensive bits of transport infrastructure? First Aurigny, then a couple of oil tankers and now half a ship. Meanwhile, Jersey looks on with bemusement.

"And why was it an ‘emergency’ that enabled Guernsey’s Civil Contingency Authority to step in with all the attendant strict secrecy? If the situation was a threat to Guernsey’s supply lines, then at face value it would have been for Jersey too – and yet that does not seem to be the case. What does it tell us about the state of Jersey-Guernsey relations?

"Let’s start with the facts as we know them. Guernsey’s Chief Minister told a Scrutiny hearing in January 2021 that his committee was weeks away from buying a vessel.
Condor has a four-ship fleet. It owns Liberation, Clipper and Goodwill and it leases Voyager from one of its shareholders, Brittany Ferries. In addition, it has chartered-in on an ‘as-needed-and-if-available’ basis the MV Arrow to supplement the freight route when, for example, a ship is in dry dock.

"We know also that Condor had a seven-year agreement with Jersey, following which it is now in a three-year run-down period of which about 18 months remain. We also know that the Channel Islands market is pretty sub-optimal in economic scale, with the freight operation financially underpinning the passenger operation. Very few vessels actually fit into our harbours, so in the absence of building bespoke vessels at £80m a pop, at any one time, only three or four second-hand vessels might be available anywhere in the world to buy. The 18-year-old Straitsman (now the Islander) is one such.

"We also know that like all ferry operators, Condor was mightily squeezed by its trading experience through the pandemic. Spare a thought for the not-so-new shareholders who managed to complete the transaction just a few days before the pandemic struck, with spectacularly poor timing as it turned out. Consequently, their ability and appetite to fund new ship acquisitions either by injecting new equity or more borrowings will have been impeded. Fortunately, the government of Guernsey has deeper pockets and a lower cost of capital and was publicly ready, willing and able to assist.

"Now let’s inject in some assumptions. Negotiations for the Straitsman have been ongoing for some time, with plenty of speculation on public fora as to its future. It was rumoured to have a 15 million euro price tag four or five years ago, although a refit for local waters could have added another 10m euro. Still quite a long way shy of the £32m committed to its recent acquisition.

"But the shipping industry is notoriously cyclical and, as a vendor, if you know a government has committed to buying a ship, that would nudge the asking price up a tad. Let’s say negotiations finally led to Condor entering into heads of terms to buy or an option to acquire it by, say, the end of March. Guernsey intended to do this through the Guernsey Investment Fund, a third-party fund of which the government is the cornerstone investor. It just needed a new infrastructure cell to be set up and funds invested and Bob’s your uncle.

"The GIF would then co-invest alongside Condor through a new special purpose vehicle to own the ship, using a good dose of commercial borrowing to fund the purchase. The SPV would then charter the ship to Condor, securing a sufficient income stream to cover the cost of the debt.

"Any bank would only lend to this kind of deal if it had a guarantee from the government of Guernsey as the best form of security. And the government would only give a guarantee provided it had ‘step-in’ rights to take over the ship if things went belly up. In that situation, the bank wouldn’t want to be left with an old ship to offload and the government of Guernsey would want to be able to step in anyway, given resilience to the supply chain is the prime driver.

"Everyone in Guernsey has plenty of prior experience of doing this kind of structuring with the Guernsey Housing Association, so that shouldn’t have been beyond the wit of the lawyers to iron out. The collapse of Silicon Valley Bank and (effectively) of Credit Suisse in the midst of all this squeezed credit markets and may even have led to the withdrawal of any bank’s indicative offer to lend.

"With the clock ticking down to completion and with payment due, Condor might have been becoming increasingly nervous that for whatever reasons Guernsey wasn’t or couldn’t complete the deal on time. It’s at times like this that nerves can fray and one of the parties who have entered into a commitment on the back of what they thought was an understanding, can start thinking or even threatening legal action. So the risk of losing the deal and with it access to one of the only ships that fit our harbours would have been climbing.

"But that doesn’t explain why this issue was suddenly a threat to Guernsey’s logistics supply sufficient to meet the CCA Law’s definition of ‘emergency’. After all, nothing had changed, if Condor still had access to the MV Arrow as the tried and test back-up to Goodwill and Clipper.

"Besides, the collapse of the commercial deal is one thing, but the CCA were very keen in their limited public commentary to emphasise the existence of ‘non-commercial sensitivities’ which might limit their ability to reveal everything they’d apparently like to reveal. Intriguing. What could they be?

"What about if the talks between Jersey and Condor for the renewal of the contract in 18 months aren’t going well – or aren’t really going at all? Or what about if Guernsey’s conversations with Jersey and Condor are similarly blighted? That could be described as a non-commercial sensitivity about which Guernsey might not be able to say much for some time.

"In other words, if Condor sail away in 18 months – or if Jersey go off and do their own thing – it could enable a case to be built that would meet the legal test that if Guernsey does not seize this window of opportunity to acquire this particular vessel right now, the island’s future supply line might be threatened. Not that one vessel entirely secures the island’s needs but it might have been judged to be a start and better than having none.

"This scenario could explain why there does not seem to have been dialogue between Jersey and Guernsey on a situation involving the islands’ supply chains designated by one of them as a sufficient threat to be an emergency.

"That apparent failure to be able to engage constructively on a clear area of common interest ought to be of concern to us all."

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