Sullom Voe’s financial future under review
Rosalind Griffiths
The port of Sullom Voe may be worth £70 million, but if it was sold it could realise £100 million in investments, according to financial modelling.
But, said chairwoman of the harbour board Andrea Manson, the port is categorically not up for sale. It does, however, have to increase its income.
Ms Manson said: “It’s not for sale, we’re just looking at how much we could make by investing the money.” Regarding its income, she said: “The oil industry has to tell us what it needs.” She added that the report was the first of many.
Head of infrastructure Maggie Sandison said the oil terminal is currently at a “low point” in activity and therefore in income. The money coming in could be increased in two ways – by reducing its hours of operation, it currently operates “24/7”, or by increasing charges.
Mrs Sandison said: “What we currently have is not sustainable so something has to change.
“By changing the operating model [from 24/7] we could change the operating cost and increase return.
“Currently income is generated by harbour dues so we could change the charging mechanism.”
Sale is one option, she said, that was looked at in the report and checked by local government advisers SOLACE (Society of Local Authority Chief Executives). The valuation of £70 million, estimated by SOLACE after financial modelling done by the council, was based on the current low throughput.
Mrs Sandison said it is predicted that the throughput at the terminal will increase in the coming decades before reducing as the terminal runs down, expected to be around 2050.
This week a meeting of the harbour board heard that harbour dues at Sullom Voe could be increased by six per cent, which executive head of finance James Gray said would ensure the organisation would be achieving a financially sustainable budget for 2015/16.
Mr Gray also said that it was expected that gas throughput from Total would start by at least the autumn of next year, in the “last two quarters” of the financial year. He said that £1.349 million was a “realistic” figure for this period, and this would fund council services.
Michael Garriock
Why not stop wasting time and money discussing shuffling the deckchairs on the Titanic, and admit what a significant section of the public already knows beyond doubt, that the SIC are pitifully hopeless at operating any sort of commercial venture.
If Sullom Voe is believed to have a £70 Million sale tag, you cannot escape the inalienable fact that someone somewhere believes they would be able to generate a larger profit from that £70 Million were they to put it in to the Sullom Voe enterprise, than they would be able to generate investing it in anything or anywhere else. Ergo, the SIC are failing miserably to realise the full earning potential of their asset, if they believe investing its value elsewhere would return them a higher income.
If after attempting to run this enterprise for 35 years the SIC have yet to figure out how to make it and keep it a maximum profitability venture, is it not long past time they quit trying to do what they have more than adequately demonstrated they cannot, and get someone in who can to do it for them.
A possibly utilisable business model to do so has already been up and running within the SIC for eight years. The Foula Ferry was put out to contract in 2006, and from memory the winning bidder’s tender came in considerably under what it had been costing the SIC to provide the service previously. When it went up for contract again in 2011, the winning bidder’s tender not only came in again considerably under what the service had been costing the SIC five years previously, but also came in considerably under the winning bidder’s price for the previous five year’s contract.
If private commercial ventures can reduce costs and maximise income on a relatively small contract such as the Foula Ferry, manage to provide a service at least equal to what the SIC did, with fewer publically reported complaints and criticisms than the SIC did. Yet still return an overall profit to their own pocket, and still mange to reduce the total cost of the service by in to the £100,000’s over what it cost the SIC to operate it based on meeting actual costs only, is any more evidence really needed for the way things need to go as far as they possibly can across the board?
How much would a commercial operator pay the SIC to run Sullom Voe under contract on their behalf, how much would one pay for a on lease Sullom Voe? I suspect either one would be a better paying spec for the SIC than the current arrangement. Why aren’t these options been looked at first, instead of selling the goose that lays the golden egg, which should be the option of last resort, not the first.
Why hasn’t the Foula Ferry model at least been considered for roll out right across the SIC Ferry Dept. Or right across all SIC operations for that matter? There is very, very little that the SIC does that couldn’t be done exactly the same if not better by commercial operators, and even if savings from doing so were to only be a small percentage of what they were on the Foula Ferry contract, they would be well worthwhile, and would very probably negate the need for any of the front line service cuts we’re now having to live with.
The SIC payroll has no need to be more than a handful of people, only the key officials necessary by statute, and a skeleton staff adequate to administer contracted in services.
John Tulloch
Excellent suggestion, Michael, and the profits accruing as a result could be deployed towards installing fixed road links where practicable, bringing savings on ferry costs, on top.
Chris Johnston
Other options:
1. Hire a head experienced in running ports profitably, pay him/her well, and not put any handcuffs on. SIC must back up the head’s decisions.
2. Hire an operations firm experienced in running ports profitably, pay it a fee based on a percentage of profits, and sack the present staff. Present staff can work for the operations firm if they want to keep their jobs.
Johan Adamson
Good idea. They could also get operators to run Tingwall Airport and inter island flights, ferries (like Orkney) telecom/broadband services, the Scord quarry; and they could buy in Payroll and IT services instead of employing people in house. But you would have to have a strict service level agreement so that we got what we wanted and there were no worries with the service like when Serco were awarded the Northlink ferries contract.
Scott Graham
The phrase ‘selling the family silver’ comes to mind. No doubt it would be frittered away in a few years, in which time the current crop of spineless councilors will be long gone and happily living off their fat pensions.