But the Committee of MSPs has expressed concern over the European competition rules that govern the tendering process and has made recommendations on how the ferry services can be developed.

The report follows six months of detailed work on the tender specification by the Committee's two reporters, Maureen Macmillan MSP and Des McNulty MSP. Maureen said: "The ferry services are of fundamental importance to the economic and social sustainability of remote and island communities. Des McNulty and I have consulted widely on the specification with this in mind.

We found that the majority of those we consulted on the specification welcomed the broad principles on which the document is based, specifically the protection of current maximum fares, minimum service levels and high safety standards."

Des McNulty added: "The specification states that the Executive is required, under European competition rules

To tender the services to the bidder who can fulfil the requirements of the specification for the lowest level of subsidy. This requirement is based on the assumption that bidders will compete with each other to produce the lowest possible bid.

"However, concern was expressed by the consultees that if there is limited interest in the ferry services from potential bidders the process may not provide the best value to the taxpayer.

"The Committee takes the view that a route development or route enhancement fund may be needed, above and beyond the undertaking to provide additional sailings to remote islands or respond to other sources of demand including the needs of growing industries, such as fish farming.

"Our report outlines, for the Executive's consideration, mechanisms for monitoring changes in demand and ways of testing initiatives to develop services in response to this demand. The report also proposes that the Executive seriously considers creating a new planning structure to produce long term service development plans for the network of services as a whole."

The future of the Gourock-Dunoon ferry route is a continuing concern identified in the report. The specification states that the Gourock-

Dunoon ferry service must be a stand-alone passenger service instead of the current vehicle and passenger service. The vehicle service does not qualify for a subsidy as a private competitor nearby is operating a vehicle service without subsidy.

The Executive has stated that the Gourock-Dunoon vehicle service cannot operate on the same vessel as the subsidised passenger service due to the possibility of 'subsidy leakage'. The Executive has not yet been able to produce an accounting mechanism that satisfies the European Commission that no subsidy leakage occurs.

Maureen Macmillan concluded: “The Committee's view is that the Commission's rigid requirements for the enforcement of European competition rules should be challenged. It seems illogical that the application of rules designed to protect and advance competition should have the effect of creating a monopoly on an important route for a single private provider on the Gourock - Dunoon route."

Other key recommendations include:A transparent system of accounting should be set up to allow the Executive to provide a financial breakdown of route costs wherever necessary.

The provisions of the Transfer of Undertakings (Protection of

Employment) Regulations should be incorporated into the specification to protect the rights of Caledonian MacBrayne employees during the transfer of services to the successful bidder.

The Executive should research the advantages of discount schemes for frequent users, specifically an equitable discount scheme for hauliers which complies with European competition rules.

The Executive should ensure that, in contrast to the draft service specification for the first tendering process, the document produced for the next tendering process is comprehensive and that the consultation on it is both thorough and inclusive.

Background Notes

The Executive is required to tender the ferry services in order to comply with European competition rules.

The Committee has endorsed a report produced by its reporters, Des McNulty MSP and Maureen Macmillan MSP, recommending changes to the Executive's draft service specification. The purpose of the final service specification is to lay down provisions which the successful bidder for the services must comply with in order to receive subsidy from the Executive.