Sea Fisheries: Vessel Modernisation and Decommissioning Schemes

The Comptroller and Auditor General for Northern Ireland, Mr John Dowdall, today published his report on Sea Fisheries. The report examines the Department of Agriculture and Rural Development’s handling of a series of ‘Vessel Modernisation’ and ‘Vessel Decommissioning’ Schemes over the period 1994 to 2005 and considers the impact of assistance on the Northern Ireland fleet.

Background

The Northern Ireland sea fishing industry is significant to coastal communities, particularly within County Down, where the larger vessels of the fishing fleet are concentrated in three ports – Kilkeel, Portavogie and Ardglass. Overall, it provides direct employment for some 1,660 people, both within the fleet itself and in ancillary areas, such as fish processing and marketing, boat building and repairs, chandlery and harbour administration. At June 2006, the Northern Ireland fleet comprised just over 300 vessels.

The EU established its Common Fisheries Policy in 1983. Its primary aim is to maintain a sustainable fisheries industry, with a long-term balance between fishing activity and the conservation of fish stocks. In 1992, however, a review found that there were too many vessels for existing fish stocks. Since then, the EU has provided some £15 million to fund three vessel decommissioning schemes, in 1993-98, 2001 and 2003. It has also funded two vessel modernisation schemes, in 1994-99 and 2002-06, with a further £3 million.

Main Findings and Recommendations

On vessel modernisation schemes (Part 2 of the report)

• The Department should have established, through a survey or inventory, the specific modernisation needs of the fleet and fully defined the priority areas for development, before introducing the 1994-99 scheme. Although the Department considers that this would not have been practical, the Audit Office believes that it would have helped to ensure that grant was targeted at priority areas (paragraph 2.7)
• The report notes strong evidence of ‘deadweight’ – that is, assistance over and above the minimum amount required to bring about the benefits of a project. Even though one-third of applicants declared that they were prepared to proceed without any grant, the Department still offered the maximum 50% rate of assistance in all cases. Over £660,000 was paid to these 53 applicants. While the Department considered that the information provided by applicants was not universally reliable, the Audit Office saw no evidence of such concerns being expressed at the time. Also, it does not consider this sufficient reason for not even attempting to test an applicant’s need for maximum assistance (paragraphs 2.16-2.18)
• Two smaller modernisation schemes were introduced in 2002. The report considers it encouraging that the Department has improved its administration, compared with the earlier scheme, but notes that all 26 applicants offered assistance at the time of its review had been offered the maximum 40% level of support available (paragraphs 2.27-28)

On vessel decommissioning schemes (Part 3)

• Contrary to its aims, the 1993-98 UK-wide Decommissioning Scheme appeared to decommission the least productive of applicants, as opposed to those exhibiting the highest degree of activity (paragraph 3.13)
• The Department operated a ‘strike-price’ mechanism in its 2001 scheme, designed by a fisheries economist. However, it misinterpreted the advice given to it, on how the mechanism should be operated. Five unsuccessful applicants appealed against the methodology used, but the Department upheld its original decision. One vessel owner then applied for a judicial review which, in due course, found in his favour. Two other applicants who were refused grant would also have been eligible. Six applicants who were offered assistance would not have been entitled to grant (although only four of these subsequently decommissioned) (paragraph 3.19-3.33)
• The Department’s interpretation of the 2001 Scheme has proved costly. It has had to pay compensation of some £153,000 to two of the three applicants unlawfully refused grant. It has also had to pay for interest charges over a three-and-a-half year period and the legal costs of the two applicants - a further £88,000. Conversely, the Department has also paid over £280,000 to the four applicants who, under the revised scheme interpretation, would not have been successful (paragraphs 3.38 and 3.42)
• The report expresses concern that the use of a strike price mechanism did not represent value for money. In the 22 cases where the applicants submitted bids below the strike price, the Department increased the bid price to the value of the strike price. As a result, it paid the 22 vessel owners more than they had actually sought in their grant application. The 22 bids were uplifted by, on average, over £40,000 each, costing the Department an additional sum of around £900,000. The Audit Office could see no justification for applying the strike price mechanism in this way and considered that the value for money which might otherwise have been achieved had been substantially eroded (paragraph 3.42)
• The report notes the Department’s view that it is in the nature of a strike price mechanism that vessel owners will be induced to make low bids on a tactical basis, seeking to ensure that their vessels will fall within the accepted group. By doing so, they deflate the strike price, and this deflation, the offer of the strike price to vessel owners bidding above it and the competitive and anti-collusive nature of the exercise combine to deliver value for money. However, the Audit Office considers the Department’s comments speculative - six of the applicants, with bids above strike price, accepted decommissioning grants that were, on average, some £26,600 lower than their bid prices, suggesting that the strike price was set at a generous level (paragraphs 3.40-3.41)
• In the 2003 Scheme, the Department did not adopt the strike price mechanism, due to “perceived inequities, unpopularity and difficulty” (paragraph 3.44)

On the impact of grant assistance (Part 4)

• Given that assistance under the 1994-99 Modernisation Scheme was largely aimed at improving crew safety and working conditions and maintaining the quality of fish prior to landing, the reports finds it disappointing that many applicants saw the grant as a means of updating ageing components on vessels. However, it considers that the specific targeting of the 2002-06 Schemes on safety and product quality should prevent this from recurring (paragraph 4.6)
• In each of the three decommissioning schemes, the Department generally failed – sometimes quite significantly – to achieve its performance targets, in terms of the level of decommissioning secured and the relative cost (paragraph 4.18).