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Statement by the President, States' Trading Supervisory Board

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Wednesday 24 March 2021

General Update

It's just over a year since my predecessor last updated the Assembly on the work of the STSB. A lot has happened since. Much of it very bad.  Let's hope we've finally turned the corner.

Certainly 2021 should see good progress on a number of capital projects including the replacement of Guernsey Airport's hold baggage system.

The Future Guernsey Dairy Project is also proceeding well and we hope to appoint a company to help with the more technical design elements shortly.

On the inert waste project, we await progress on the key elements which sit with the DPA and E & I. That work has been delayed by the pandemic, but our project team is progressing other elements, so that a business case can proceed quickly, once planning permits. It's crucial this project isn't delayed further as space in the current inert waste disposal site is dwindling fast.

In the next few weeks, we will publish a policy letter on the review of future harbour requirements, setting out options for new port developments. 

When that major debate happens it will provide an opportunity for the States to make a clear decision on a preferred way forward, which in turn will have a significant bearing on the work of the Seafront Enhancement Programme.

Progress on the rehabilitation of the runway at Alderney Airport stalled in 2020, due to COVID-19, but work restarted in earnest before the end of the year, and I can assure our Alderney colleagues that this remains a priority project for us.

Various surveys that were needed before the detailed design could commence are close to completion, and the scope of the EIA has been agreed.

On the subject of Alderney's air links, the STSB is pleased funding has finally been resolved with P&R, and Aurigny is no longer left to bear the financial burden of these loss-making but important community routes. Over the past year, the airline has also worked with the Alderney community, to foster a more constructive dialogue.  The benefits are now becoming evident - in greater engagement, better mutual understanding, and a more collaborative approach. Something the STSB wholeheartedly welcomes and encourages. 

As members will be aware, Aurigny has been very hard hit by the pandemic over the past year.

At the start of the first lockdown, the States made provision for a loss of up to £27 million for 2020. By the budget in December we reported this was expected to be significantly less, at around £24 million.  We now expect the full year trading loss will be slightly better than was anticipated in December prior to any accounting adjustments. 

In the budget we also forecast a loss of £14m for this year, excluding any costs associated with Alderney.  Eye-watering, certainly, but it would still have been a significant improvement on 2020.  However it was made clear that these projections were based on a gradual return to normal flying from the start of 2021. Circumstances both here and elsewhere have, sadly, meant the optimism was short-lived, and while 2021 should still be better than last year, as a consequence of the ongoing impact of COVID-19, Aurigny now anticipates a trading loss closer to £18 million, again excluding the Alderney routes and any accounting adjustments.

However we should remind ourselves why we own an airline. The wisdom of that decision has again been underlined during this pandemic. We have had the reassurance of knowing the Bailiwick's vital air connectivity could be maintained. The value of that cannot be overstated - to islanders attending medical appointments or needing to travel for compassionate reasons; for the lifeline services in Guernsey which rely on our ability to bring essential workers to and from the island; and to the many families who were reunited at Christmas after the operation to ensure the return of all our university students.

To its credit, Aurigny has sought to offset some of the impact through alternative revenue, such as the successful air bridge to Isle of Man, and charters for Formula 1 teams, and has remained ready to restore the island's air links as soon as circumstances allow. It also now has a new chairman and a new chief executive, who together bring a wealth of experience, a fresh outlook, and no doubt some new ideas to assist the airline's recovery and help reshape it to meet the challenges ahead.

For Aurigny staff, this past year has been a period of great uncertainty. Contract terminations and natural attrition followed by fleet simplification led to a 20% reduction in headcount. More than half of Aurigny's remaining employees have been on furlough. Many have been redeployed to assist in other capacities, such as helping with border controls, working in the track and trace programme or at the testing centre on the East Arm. Even for those able to carry on their normal role, COVID-19 has imposed extra burdens and all staff saw a significant pay reduction last year. 

I should also acknowledge the hard work of staff from all our businesses, to ensure essential services were maintained during one of the most testing periods in our recent history.

Whether that be States Works land management team being offered to assist at the hospital; airport maintenance staff being redeployed to provide cover for colleagues at the harbour; or airport firemen being listed as relief ambulance drivers.  Our staff have shown again and again how we have much to be proud of in our public sector.

There are further challenges ahead.  The 80% drop in passenger numbers through the airport and harbours in 2020 also had an enormous impact on revenues for Guernsey Ports. Members will be aware from the budget, it was forecast to make a deficit of nearly £12 million last year, with a further £7 million shortfall in 2021. That is entirely as a result of the pandemic, and efforts are now focussed on a recovery plan to help rebuild its balance sheet over the coming years. 

Not all the challenges we face this year are COVID-19 related. For instance, a review of household waste charges is under way, following the enormous success in recent years, in driving waste tonnages down and recycling up. With lower than expected income from bag charges, Guernsey Waste's pricing strategy and efficiency team is looking at how it can best balance the books long term.

We will bring proposals to the States on that tricky conundrum in the second half of this year. 

Looking more broadly, we are responsible for maintaining much of the Bailiwick's core infrastructure, and the day to day provision of many of its essential services within a framework of legislation, regulation and policies set by the States of Guernsey. We also help to shape that framework through the expertise we provide to Committees.

For instance, working with Environment & Infrastructure on matters related to the dairy industry, waste, and energy policy - and with P&R and Economic Development on the air and sea policy review. 

Where there are policy gaps, it can have a major impact on us. One example is the lack of progress in establishing a new regulatory model for Guernsey Electricity. The last comprehensive review of the company's tariff structures was nearly nine years ago, and the STSB is pleased that the government work plan identifies this as a priority along with establishing a new licensing system for the electricity sector. It is very long overdue.

As a capital intensive business, GEL needs financial certainty and stability to be able to plan for major investment in new infrastructure, such as a second interconnector, for the island to transition to a lower carbon future. 

And to embrace a new competitive market for renewable generation, as visualised by the energy policy, Guernsey Electricity must address the imbalance between fixed and unit charges, so they reflect properly the cost of supply.

We also look forward to the completion of the air and sea policy review - another priority in the draft work plan, which will provide very much-needed direction over the States' expectations of Aurigny.

In closing, it is worth reflecting for a moment on the transition a number of our businesses have been going through. When the STSB was first formed, they were at very different stages of the journey to becoming truly commercial operations. Much of the first four years was spent ensuring they all had in place core business disciplines, particularly around good governance and rigorous business continuity planning, which has served us well in weathering the current storm.

The last 12 months may have cast a shadow over some of the STSB's finances, but it also taught us a great deal. It's reminded us of the importance of resilience and flexibility, and the value of good planning.  Above all, our staff have demonstrated the ability to embrace change and adapt quickly to new ways of working, which could bring additional benefits, through greater efficiency and smarter working.

We are now busy planning for recovery, and I'm confident our operations will all emerge again as strong, financially stable businesses, valued by islanders.

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