Our account of efforts to persuade CMAL, Transport Scotland and ultimately Scottish Government to buy a catamaran ferry for Mull.
Scottish Government and Islands Minister Paul Wheelhouse made repeated public commitments from 2018 up until he left office in 2021, for CMAL to make every effort to purchase second-hand ferries from the world-wide market. Should anything suitable be identified by CMAL, the commitment was to buy it for use in the CalMac fleet. The service was (and still is) beset by delays to the arrival of hulls 801 and 802; an ageing and increasingly unreliable fleet, and severe congestion on many parts of the network (particularly Mull). Additional vessels were and remain desperately needed.
CMAL were unable to find any vessels that they deemed suitable, in the entire world-wide used vessel market (also known as the S&P market).
MIFC had been introduced to the potential advantages of medium-speed catamarans by noted ferry experts Prof Alf Baird and Roy Pedersen (author of ‘Who pays the Ferryman?’).
In May 2020, Roy Pedersen wrote to the CEO of CMAL, alerting him to the opportunity to buy a 71m medium-speed catamaran that was under construction in Batam, Indonesia. Due to commercial uncertainties caused by the Covid19 pandemic, the originally intended end-user had asked the seller to find an alternative buyer. The vessel was therefore being marketed world-wide by its Hong Kong owner Sealease. A sale in such circumstances is not unusual – sometimes vessels will change hands several times whilst still under construction. The advantage to the buyer is that as well as buying a new vessel quickly, they usually have the ability to modify the vessel economically, perhaps even whilst still in the shipyard. Modifications are often needed, in order to satisfy operational requirements (like the length and position of vehicle ramps) or regulatory requirements (like varying lifeboat provision) as required by each nation’s marine safety regulator (in our case, the Maritime Coastguard Agency, or MCA).
Roy and Alf also alerted MIFC to the catamaran opportunity, because they knew that the Craignure-Oban route was in great need of additional capacity, and they could also see that the size and design of this vessel was ideal for the route. With a car capacity of 81, and over-all length of under 75 metres, the catamaran offered the ability to both increase capacity and berth overnight routinely from Craignure pier; something that the current vessel MV Isle of Mull cannot do.
The initial response from CMAL
It is worth noting at this point that a couple of months earlier in January 2020, Alf Baird and Roy Pedersen had given evidence at the Parliamentary Enquiry into Procurement of Ferries in Scotland that included criticism of existing ferry design choices, and of CMAL. In response to a question about the 801/802 contracts, Roy Pedersen suggested the cause of the failure could be “vested interests, incompetence or corruption”. Shortly after this, Roy received legal letters from CMAL, asking him to retract his evidence or face legal action. CMAL were admonished by the committee chairman and asked to issue an apology.
Alf Baird is also well known to CMAL through his membership of the Ferry Industry Advisory Group. He appears to be viewed as something of a thorn in their side, by frequently drawing attention to the shortcomings of CMAL procurement policy and the wider ferry system. This was illustrated at a meeting between MIFC and the CMAL CEO in the previous year, when in response to the question “what do you think of these catamaran ideas of Alf Bairds?” the CMAL CEO said, “The man’s a wa**er”. Bear in mind that this was the first formal meeting between the public agency who procure vessels on behalf of government, and community representatives from Mull and Iona. Quite a choice of language.
Clearly therefore, the proponents of the catamaran were not respected by CMAL, and this seems to have coloured their response to the vessel. The suggestion by Roy Pedersen and Alf Baird to the CMAL CEO that he consider this catamaran for purchase was swiftly and categorically rebuffed. In some terse email exchanges, the CMAL CEO stated that according to his calculations, there was only enough weight carrying capacity for two half-empty trucks in addition to the full passenger compliment. Such a low capacity, if correct, would obviously render the vessel completely unsuitable. However, CMAL’s calculation was entirely incorrect.
This was where MIFC were first able to contribute, and explain that this conclusion was based on a fundamental mis-interpretation of the general arrangement drawing. Rather than a vehicle capacity of 70 tonnes as claimed, it in-fact had a total capacity of over 300 tonnes. This is considerably more than the current main vessel the MV Isle of Mull, and far more than the carrying statistics for the route prove is necessary. Rejection of the vessel on the grounds of insufficient deadweight capacity was entirely misplaced and mis-informed.
Having addressed this error regarding deadweight capacity, MIFC set about getting more detail of the vessel, and assessing its suitability. CMAL showed no signs of doing so, so it was clear that one of MIFC’s roles would be to investigate the viability of the vessel for the Craignure-Oban route. One key operational need would be the ability of the vessel to berth at the current piers, both bow and stern-in, and moored either port or starboard-side-to. In order to draw up the necessary vehicle ramp changes, the sellers needed dimensioned drawings of Oban and Craignure piers. MIFC obtained drawings for the Council-owned Craignure pier very quickly, but repeated requests to CMAL to provide the same information for Oban went unanswered.
Ultimately, we had to measure the linkspans ourselves, and pass this information to the sellers, who were able to draw up a dual-ramp arrangement that would suit all linkspans in the CalMac network.
We were also able to advise them on CalMac’s likely requirements in terms of live-aboard crew facilities, the location of passenger access systems and other detail. In the absence of engagement by CMAL, we tried to assist the sellers as best we could.
Deliberate obstruction and the red herring of MCA approval
As a result of our assistance, Sealease were able to take the initiative. They wrote to CMAL in August of 2020 with an outline proposal of how the vessel could be modified to suit the route. Subsequent to that, we secured a meeting between Selease and Transport Scotland. Transport Scotland asked CMAL to engage with Sealease on the commercial and regulatory aspects of a potential deal, and thus finally began the formal phase of negotiations between Sealease and CMAL in September of 2020.
Sealease have subsequently provided their own account of those negotiations (Document 1, available to view at the bottom). What quickly became clear however, was that CMAL did not appear to be a willing and serious buyer. In the world of second-hand vessel sales (the Sales and Purchase, or “S&P” trade), there are some common-sense and established ways of working that ensure a fair and mutually understood process. Although this vessel was in the process of being built, it was not being offered as a new-build contract by the shipyard. It was a second-hand, or re-sale of a vessel built for another party and jurisdiction. The seller is not the shipyard, but the customer of the shipyard, who is selling the vessel as designed. This is called a new-build re-sale, and the commercial process is generally the same as it is for the re-sale of a ship that has already entered service. In this circumstance, the vessel is sold on an as-is, where-is basis – ie the buyer takes ownership in its final configuration and location. It is then the responsibility of the buyer to undertake any modifications required, either to satisfy operational needs (like the vehicle ramps) or regulatory requirements (like the number and location of lifeboats). The seller is likely to assist with investigating those modifications, and in this case (where the seller is a sister company to the vessel designer), they may offer to undertake that design modification work under a separate contract.
The essential pre-requisite to the process however, is that the seller and buyer first need to formally agree commercial terms including what conditions will be applied to the sale. Sealease offered to sell the vessel to CMAL for $12.5 million. They also offered to make the sale conditional to the approval by the MCA of the design, including any modifications needed to meet local regulations. In other words, they accepted that if the MCA did not approve the modified design, then the sale did not have to proceed.
Undertaking the sale negotiation in this order (ie, agree commercial terms first, and seek regulatory approval second) is not just a matter of what is normal business practice, but is simply a matter of common-sense. It costs a significant amount of money to have a vessel design assessed by the MCA. In this instance, it was going to cost £50,000 for the MCA portion of the work alone. In addition, there is the time of naval architects to pay for, not just for the modifications needed for the MCA, but also for any operational changes required by CalMac (e.g. crew cabins and vehicle ramps). But in any event it is market practice that the cost of seeking regulatory approval is borne by the buyer. If modifications and regulatory approval are not handled in this way, it places an unrealistic burden on the seller that is likely to make any sale impossible, as was proven in this case.
Throughout the discussions with Sealease, CMAL took the position that they expected Sealease (the seller) to pay for and achieve regulatory approval with the MCA before the sale had been agreed. They expected Sealease to pay c£50,000 for MCA approval, and to undertake all of the re-design work entirely at their own risk. This is commercially non-sensical and made the sale impossible. The vessel is for sale on a world-wide market. Each country has its own set of regulatory requirements, and gaining approval in each one is a costly and time-consuming process. It is a process that no-one would undertake unless they were confident of a sale at the end. Sealease were being asked to spend tens of thousands of pounds to secure MCA approval even before a sale price had been agreed.
To offer an analogy to show how topsy-turvy this is – MCA approval is much like an MOT for a car. A salesman with a car that has just six months until the MOT expires is unlikely to put that car through a new MOT test, simply at the request of a visitor to the show-room. The car salesman will not bear the cost of an MOT before agreeing a sale, because he is left open to the strong possibility that potential buyer will change their mind, or not offer the full amount, or perhaps just not come back. It’s the same with MCA approval for a ferry – Sealease were being asked to put large sums of money at risk, with the strong possibility that once they had achieved MCA approval, CMAL might decide not to buy it, or offer far less than the asking price. No commercial company would accept such terms.
Sealease’s sister company STS designed the vessel and have a team of experienced naval architects. Sealease itself has significant experience of selling cross-border (internationally). STS designed the Pentalina, operated successfully for many years by Pentland Ferries for services to Orkney. They had assessed the MCA requirements presented by CMAL, and were very confident that with modest modifications, the vessel would easily pass MCA requirements. They also provided an estimate of $2.5 million for the cost of modification works (Including a ‘guesstimate’ of likely modifications to satisfy CalMac’s operational requirements, necessitated by there being zero engagement from CMAL as to what these requirement actually were).
Despite CMAL’s unconventional position, Sealease attempted to conclude a deal following the norms of the S&P trade. In December of 2020 they sent a formal sale offer to CMAL. This formal sale offer proposed a price of $12.5 million for the completed vessel as-is, and had two key conditions:
The sale would only conclude if MCA design approval was achieved
The sale would only conclude if Scottish Government approved the budget for the purchase.
The sale offer was therefore as open as possible – not only was there no risk posed by the MCA process (no approval, no sale), but by adding budget approval as a condition, they hoped to enable CMAL to progress discussions before being certain that government would actually follow through with the funding. All they wanted was formal commitment from CMAL that they would pay the asking price, if it passed the MCA and government had the money. (just like the car salesman would want a handshake on a price before he would put the car in for an MOT).
Incredibly however, the Sealease sale offer did not illicit a response. Not even an acknowledgement. It was received by the CMAL CEO, but he made absolutely no response to it. No acknowledgement, no questions, no counter-offer, nothing.
Attempting to break the MCA impasse
By January 2021 is was becoming clear to MIFC that CMAL were not engaging in the sale on a good faith basis. CMAL appeared to be using the MCA issue as an excuse not to proceed. Their insistence that Sealease must first gain MCA approval for the design was baffling, both to Sealease themselves (who have many years of experience selling vessels internationally), and also to MIFC.
It was clear to us that the vessel was an excellent opportunity and value for money. The delivered price (after modification) of around £11 million is one sixth the total cost of new ferries currently being designed for Islay, and one tenth the cost of the late and over-budget hulls 801 and 802. Furthermore, unlike those vessels it did not require any pier modifications, and could be delivered within the year. It was deeply frustrating and shocking that in circumstances where additional vessels were urgently needed, CMAL appeared to be deliberately obstructing this opportunity. (We lay out all the service benefits and cost-benefit analysis in documents 2 and 3 at the end.)
Rather than make our misgivings about CMAL’s behaviour public however, we tried to find a constructive solution. If MCA approval was the key to a successful outcome, then somehow we had to prove the vessel would pass the MCA, without actually going to the expense of a £50,000 assessment.
The solution was to commission an independent assessment by a team of naval architects from the respected School of Naval Architecture at Strathclyde University. This was still a costly exercise (£14,000), but Sealease very generously offered to pay half the cost, if the communities of Mull and Iona could come up with the rest. A Crowdfunder appeal was launched, and in just a matter of days we raised the funds required.
Meanwhile, the then Islands Minister Paul Wheelhouse had written to say that the catamaran would not be pursued, based on the advice he had received from CMAL and Transport Scotland. With the help of our then-MSP Michael Russell, we gained a reprieve – the Minister agreed to wait for the outcome of the Strathclyde University report before making a final decision. Just 2 weeks before the Scottish Parliamentary elections, the Strathclyde University report was delivered to Transport Scotland. It is available to view at the end, as document 4.
The Strathclyde report concluded that the required modifications were modest and achievable. The lead author of the report confirmed that in terms of stability and resilience to damage, the catamaran would be the safest vessel in the CalMac fleet. The report looked at all aspects of MCA requirements, and tested the vessel against the newest and most stringent SOLAS 2020 regulations. It was shown to pass requirements easily, once some moderate modifications were made. In addition, Sealease were able to confirm that there was nothing in the report that changed their previous estimate that modifications would cost around $2.5m.
The Strathclyde report was passed to CMAL just before the election, and they undertook to have it assessed by their own consulting naval architects, a company called Leadship. After the election, Graeme Dey MSP was appointed Transport Minister with responsibility for ferries. MIFC immediately wrote to him, to brief him on the subject and press for a positive outcome as soon as possible.
On July 8th we received a response from Graeme Dey (document 5 below), confirming that despite the evidence of the Strathclyde report, Scottish Government would not be proceeding with the sale. The letter cites the primary issue “…remains a lack of engagement with the Maritime and Coastguard Agency (MCA) by [Sealease] and … the significant concerns around the ability of the vessel to be made suitable for operations in UK waters…”.
In a further demonstration that the MCA red herring persisted, the letter also said that design unknowns and concerns “…should be addressed before any commercial negotiations could be recommended. These have all been previously flagged to [Sealease] from the outset of discussions on this vessel and they have opted not to take this forward or to enter into discussions with the MCA.” Even if CMAL are correct and MCA approval were required before a deal could be made, it appears that no attempts were made by CMAL to resolve this issue.
The Minister’s letter also cited capacity concerns from the Leadship report – “[the proposed modifications] would significantly change the vessel and it would have a reduced carrying capacity for passengers and cargo. The cargo diagrams which lead to the car capacity are theoretical and will be reduced in real life cargo operations.” Whilst this is a factually correct statement – it is correct that in order to accommodate the live-aboard crew cabins required by CalMac, the car carrying capacity will be slightly reduced, but remains more than adequate at around 81 cars.
It is also factually true that the extra weight of added crew cabins will result in a reduction in the weight of cargo that can be carried – but the cargo capacity remaining is still ample for the characteristics of the route. Even with the added weight of crew cabins, it will have greater weight capacity than the current main vessel, the MV Isle of Mull. Such reference to reduced capacity is irrelevant without reference to the actual requirements of the service. There is no question that the catamaran even after modification will have greater deadweight and vehicle capacity than the MV Isle of Mull, and far more than the route requires.
Incompetence or deliberate obstruction?
It was clear from the Minister’s letter that he was still being advised by CMAL that MCA approval was the responsibility of the seller, and that MCA sign-off had to be acquired before commercial negotiations could begin. As laid out above, this is a completely unrealistic expectation, contrary to the norms of the S&P trade, and commercially naive. We asked six different professionals experienced in second-hand vessel sales to confirm whether Sealease or CMAL were correct in their approach to negotiations and the MCA issue – all of them backed up the Sealease position.
If after all the months of dialogue there continued to be such crucial and incorrect advice being passed to Transport Scotland and Government, it is difficult to come to any other conclusion than CMAL’s behaviour was either incompetent or deliberately obstructive.
CMAL had demonstrated deliberate obstruction in the early phases of the process by not providing the necessary pier drawings, and incompetence by mis-understanding the basics of a general arrangement drawing. More recent evidence suggests that their behaviour goes beyond these relatively minor incidents. If their advice to government about commercial process and the MCA was wrong because they are simply incorrect or mis-informed, then it is clear that they do not have the necessary competences to undertake an international second-hand vessel purchase. They appear to be incompetent.
CMAL’s most egregious act however, was to entirely ignore the sale offer from Sealease. To not respond (not even with an acknowledgement or counter-offer) to an advantageous sale offer of such a value-for-money vessel for a fleet so desperately in need, demonstrates dereliction of their duties to the operator, the islands, and to government. If not incompetence, then it can only be deliberate obstruction.
In the weeks since receiving Graeme Dey’s decision on the catamaran, we have been attempting to make the Minister aware that the advice on which he has based his decision is flawed and misleading.
We have made repeated requests to CMAL to have their consultant’s response to the Strathclyde University report provided to us. If the Strathclyde report is flawed, we want to know. Despite multiple requests, CMAL have refused to release the Leadship report. They have cited their fears over ‘commercial embarrassment’ for Sealease, should it be made public. Conversely, Sealease have made it clear that they have zero objection to release of the report, in full. Despite this, CMAL continue to refuse to provide it. It is now the subject of a Freedom of Information (FOI) appeal.
In the course of our final email exchange with CMAL’s CEO on this topic, we got an insight into CMAL’s ignorance and lack of engagement with the deal. In the email, we forwarded written advice from an independent ship broker that supported the Sealease position. His response was that the broker’s advice was not relevant because “… the Indonesian catamaran in question is an incomplete vessel and is therefore a newbuild and not a second-hand S&P play.” This is demonstrably and factually utterly incorrect. There appears to be a confusion between a newbuild contract and a newbuild re-sale. The two things are contractually and procedurally very different – a new build contract is with a shipyard, and it is the shipyard’s responsibility to build to the regulatory requirements of the buyer’s territory. A newbuild re-sale is a contract with a vessel owner, and as explained previously, it is sold on an “as-is where-is” basis, where it is the buyers responsibility to address regulatory issues.
This statement by the CMAL CEO demonstrates not just a lack of basic industry knowledge, but a failure to have read the sale offer (the one that went un-acknowledged back in December 2020). The first paragraph of the sale offer read “The Sales Agreement shall be memorialised within a memorandum of agreement under Norwegian Sales Form.”. Norwegian Sales Form is the standard international agreement in relation to second-hand vessel sales including resales. This is rudimentary knowledge within the shipping world, and it certainly raises questions of competence for such a misconception to be expressed by the CEO of Scotland’s state owned vessel procurement company.
Where do we go from here?
At the time of writing, the catamaran is still available to purchase. For the moment, it is un-launched and the schedule for some final elements of fitting-out has been extended. A buyer is still sought.
All of the evidence we have amassed confirms that this vessel would be an excellent fit for the Craignure to Oban ferry service. The counter-argument from CMAL centres around two issues:
- They persist with their position that the seller is responsible for gaining regulatory approval.
- They assert that there is insufficient evidence that the vessel will be approved by the MCA.
In the case of point one, we have laid out above how the CMAL position is fundamentally incorrect.
In the case of point two, CMAL are insisting that the professional advice they rely on (the Leadship report) will remain secret. We have published the Strathclyde University study of the catamaran (document 4), which concludes the exact opposite. It will easily pass MCA approval.
As a voluntary community group whose only objective is the improvement of our ferry services to the benefit of users, and who have pursued this issue professionally, meticulously and fairly, it is appalling to find that the public body who shares that duty, behaves so badly. We have presented evidence, independent opinion, and have even paid thousands of pounds for professional assessment. All of which CMAL appear to be able to ignore, whilst keeping their own evidence secret.
This appallingly unprofessional behaviour appears to be further compounded by an inability within government and its agencies to do anything other than accept what CMAL tell them – even when that advice is demonstrably incorrect and misleading.
Why would CMAL behave so poorly, and ignore such an opportunity that is so beneficial to taxpayers, the operator and to islanders? At the top we explained how personality politics may have some part to play. It may be that they don’t like it because it’s not their idea, and it comes from people they don’t respect. Or it may be that this catamaran might illustrate bad decision-making in recent ferry procurement. For one-sixth the cost of a typical ferry being procured new by CMAL, this catamaran would deliver similar capacity, the same frequency, and the same speed – but with half the crewing and half the fuel-burn. Not only that, but it would come without the associated terminal upgrade costs that accompany each new CMAL vessel.
Unless Scottish Government recognise how unbalanced, ignorant and misleading CMAL’s advice is on this issue, then Mull and Iona have no prospect of improvement to our ferry service for perhaps eight years, when CMAL are due to deliver new-build ferries to replace the MV Isle of Mull. But what will those ferries be? What confidence can we have in the organisation that designs and procures our ferries, after this experience?
<< update.>> The Leadship report referred to above was provided to us by Transport Scotland in the evening of 19th August, after press releases had been issued. We have now added it below as document 7, with added notes from us. It is written from the same mistaken position as CMAL have adopted throughout – that it is the sellers’ responsibility to design and gain approval for modifications prior to any commercial agreement. As naval architects rather than ship brokers, it is perhaps unsurprising that CMAL’s consultants did not query CMAL’s position on the commercial process. The report does not offer anything to question our conclusions.