Canal business to receive £4 million of taxpayers money

[magpie patrick]

It's not a good post because its premise is fundamentally flawed. BW are undercutting the market by providing £4 million to a private company which that company will receive interest free. Access to that sort of capital is not available to my business, or anyone else in this sector. To suggest that that is not skewing the market is hard to comprehend.

 

precisely, it may not be skewing the market for the user, but it is skewing the market in favour of one provider. If BW keep this course of action up, they will then be in a position to skew the market for the user as well.

 

I'm wondering what I could do with my company if someone offered me £4 million interest free?

 

The argument is that if they are not using their competitive advantage to undercut other operators, they are not taking business away from them.

 

 

But they are, because they are ACQUIRING marinas, not setting them up, so Magpie Enterprises has to go to the bank to buy a marina while BWML doesn't because of it's NATIONALISED sugar daddy.

 

Mr Caravan Park operator who fancies trying his hand at marinas gets forced out by BWML with tax payers money. That's as skewed as it gets (I would quoted a certain skewed bridge on the Hereford and Gloucester Canal, but it's a bit obscure...)

[matty40s]

precisely, it may not be skewing the market for the user, but it is skewing the market in favour of one provider. If BW keep this course of action up, they will then be in a position to skew the market for the user as well.

 

I'm wondering what I could do with my company if someone offered me £4 million interest free?

 

give me a very interesting, demanding and rewarding job.....

[Spesh]

It's not a good post because its premise is fundamentally flawed. BW are undercutting the market by providing £4 million to a private company which that company will receive interest free. Access to that sort of capital is not available to my business, or anyone else in this sector. To suggest that that is not skewing the market is hard to comprehend.

 

The market is the provision of marinas. Anybody wanting to enter that market must have the necessary access to funds to build/purchase a marina. BW does have that cash (again, BWML is not a private company, that point is not relevant) and has thus decided to build some marinas. Until it reaches some form of a monopoly position there is no unfair/unlawful impact on the market. Lots of people don't have the money so can't build marinas. That's just how a market economy works. BW is not preventing anybody else who has the necessary resources from entering the market. Would you be running this argument if BW just did it themselves rather than through a wholly owned subsidiary?

 

On the Tesco point, the shareholders would indeed be cross if there was no chance of a return on the £4m, which is why it's the question of whether it's a good use of the money that should be discussed. I didn't say anything to the contrary. My point was that saying an entity using its money to build marinas distorts the market is plainly untrue. If Tesco decided to diversify even further and spend £4m on marinas would that unfairly distort the marina market? Of course it wouldn't. It's just capitalism. BW doing it is no different. If BW is not undercutting private operators then it's not distorting the market.

 

In fact, (and I can see this point going down really well!) BW is actually more restricted than private operators. Someone like Tesco could happily start running marinas, undercutting other operators using its enormous supermarket profits, put them out of business and then whack prices up. As a state owned entity BW is not allowed to do this.

[ymu]

Aye, good points as usual, Patrick.

 

Spesh, I think you're ignoring the monopolies and mergers stuff. As it happens, Tesco is in some hot water at the moment for circumventing the rules by using One Stop Shop to buy up small local retailers which Tesco would not be allowed to purchase directly.

 

Monopoly power is important here. I've asked before about the locations of BWML marinas- and specifically whether they are in areas which need marinas but which wouldn't be commercially viable for some reason. I don't really know the extent to which they are interfering in the market, because I don't know enough about the areas where they are located.

[magpie patrick]

Would you be running this argument if BW just did it themselves rather than through a wholly owned subsidiary?

 

 

Yes, because BW are a nationalised industry (technically, they are the only remaining nationalised transport industry) and are using tax payers funding to outbid other operators, and they aren't even using it "commercially". That is unfair competition.

 

I am not right wing, anything but, but I see this as an unaccountable state body putting the squeeze on competing suppliers

 

Ymu, thanks for your comment, I'm sure we both have more to say, but your post shows you have understood and respected my position, even if you don't agree with it

 

Edited to add, I can even see you agree with me!

Edited March 19, 2011 by magpie patrick

[Spesh]

Aye, good points as usual, Patrick.

 

Spesh, I think you're ignoring the monopolies and mergers stuff. As it happens, Tesco is in some hot water at the moment for circumventing the rules by using One Stop Shop to buy up small local retailers which Tesco would not be allowed to purchase directly.

 

Monopoly power is important here. I've asked before about the locations of BWML marinas- and specifically whether they are in areas which need marinas but which wouldn't be commercially viable for some reason. I don't really know the extent to which they are interfering in the market, because I don't know enough about the areas where they are located.

You're absolutely right about the monopoly issue, that was why I said "until it reaches a monopoly position" in my previous post. I think the question may actually be one of is it fair for public bodies to be participating in commercial markets at all because they do obviously have advantages that very few private competitors can match. Currently the legal position is that public bodies are allowed to act commercially as long as they do not use their public nature to their advantage (i.e. by charging less than market rates to end users), which is why I'm arguing that BW are doing nothing by being in the business that wouldn't also apply to any other well funded entity, private or public. The small operator being forced out by a bigger business is an issue that crops up time and time again in a market economy. The question of whether it is right for a public bigger business to be doing it is a very interesting and valid one. Patrick, in your hypothetical, would you feel it was less unfair if the small caravan park operator were forced out of business by Tesco Marinas Limited rather than BWML (assuming no abuse of a monopoly position etc)? Not meaning that as a loaded question, just interested to know whether it would make a difference.

 

Typically after trying to focus the debate on how BW run their marina business all I've actually done is discuss the issue I was trying to avoid and then introduce an entirely new one!

 

Edit: Patrick, just seen your latest post, and I fully understand your view. Apologies if anything I said above didn't give that impression. I'm not actually sure if I agree or disagree to be honest. Like I said above the question of whether nationally owned bodies should be allowed to compete in the commercial market place is a really tricky one.

Edited March 19, 2011 by Spesh

[Dominic M]

The argument is that if they are not using their competitive advantage to undercut other operators, they are not taking business away from them.

 

If they are not using the excess profits to reinvest in the waterways, or mismanaging the businesses and reducing the monies that could be ploughed back in, there is a problem.

 

If they are setting up marinas in areas where there are plenty of wannabe marina operators, instead of in areas where it is commercially unviable to do so, there is a problem.

 

Spesh's post made sense to me, in terms of what we should be concerned about, and I'm not sure it's BW's ownership of marinas per se that is the problem. But I'm following this debate with interest and learning stuff on the way, so please carry on.

Ok ymu. A yes or no question. Should the government be providing funding for the acquisition of marinas?

[matty40s]

Ok ymu. A yes or no question. Should the government be providing funding for the acquisition of marinas?

 

 

 

simples, in this present financial meltdown

 

NO

[Dominic M]

There's an awful lot being said in this thread about market distortion which is essentially innaccurate and it's obscuring the real issue of whether BM/BWML are operating their marina business efficiently. BWML does not distort the market because if it did it would be unlawful. The only way there can be market distortion is if BWML is undercutting private sector operators. From what I was told in the previous thread on this topic this does not happen. What happens between BW and BWML is, in terms of the market, irrelevant, because it's a wholly owned subsidiary. I'll respond below to some of Dominic's points to try and expand on this.

 

 

Questioning whether it is a sensible use of £4m is exactly what should be discussed, but not because it skews the marketplace for the simple reason that it doesn't.

 

 

A state owned entity doesn't need some kind of market failure to be entitled to compete in the commercial world as long as it doesn't use its state-owned nature to its advantage. If BWML is charging its customers commercial fees then there's no problem. If there is money to be made from operating marinas then BWML should be doing it.

 

 

Absolutely. This is the real issue here.

 

 

The rent issue is distracting, because it's nothing more than a way of transferring income to BW. What is an issue is whether BWML are running their marinas as well as they could be.

 

 

There's not a chance that BWML could be sold with existing leases in place. If the current rent is miles below market rates for whole marinas it would be illegal state aid if the same rates were charged to an independant private sector third party. They would either have to sell off the freehold, or alternatively put in place market rate leases.

 

 

Again, the wholly owned subsidiary factor means this isn't an issue. It's like saying it's not fair on Sainsbury's if Tesco decide to set up a subsidiary to build a new supermaket without offering to do the same for Sainsburys. BWML is a private company in strictly legal terms only. For all practical purposes you have to see it as completely the same as BW.

 

From what I've read on here there are plenty of genuine issues about the way in which BWML operates its business. It doesn't seem to make as much money from it as it should, and it would be interesting to know why they have decided to invest a further £4m at this time. I just think it is important to focus on these issues, because talk of unfairness and market distortion risks the true issues being missed.

To you , I say, why should a public body wholly funded by the taxpayer, nationalise marinas?

 

simples, in this present financial meltdown

 

NO

Correct. In any financial climate. The private sector runs marinas, and they run them better by far.

[Spesh]

To you , I say, why should a public body wholly funded by the taxpayer, nationalise marinas?

 

As I said, I really don't know where I stand on the public sector competing in the commercial world. The simple response to your question though, and an argument in favour, is to generate income to reduce dependency on money received from the taxpayer, and to raise funds to spend on maintaining the waterways.

[Paul Evans]

Ok ymu. A yes or no question. Should the government be providing funding for the acquisition of marinas?

 

I think the answer to that question is "No" but the Government has not, as far as I am aware, given BW/BWML funding for the acquisition of marinas. BW/BWML has used money from its own resources. I do understand that you think BW/BWML should have taken a decision to use the £4m for waterways maintenance (and I can see the strong arguments in support of that view) but had it taken that decision the Government (taxpayers) would have been no better off.

 

To you, I say, why should a public body wholly funded by the taxpayer, nationalise marinas?

 

Ah! So we are back to Clause 4. My view is that nationalised industries - marinas included - managed effectively would do a damn sight better job than private enterprise. A nationalised industry - managed effectively - would use its "profits" for the benefit of the whole community and not to enrich the few. I know you will point to the history of nationalised industries in the UK but I will say they failed because they were mismanaged (and mainly mismanaged by Tory Governments who had no real interest in running them effectively).

 

What happens when BW is a Waterways Charity? Will you deny the charity the opportunity to make profits for the benefit of the waterways? Do you say that the National Trust should not run commercial enterprises in support of its objectives?

[ymu]

Ok ymu. A yes or no question. Should the government be providing funding for the acquisition of marinas?

If there is a need for them in areas where a commercial rate of return isn't possible, then possibly, yes. But they would have to make sufficient profit over and above the investment for that to be a worthwhile use of the monies.

 

That's the question I've asked twice now. Are BWML marinas in direct competition with other privately-owned marinas, or were they taken on by BW because stable commercial operators weren't available in those areas? Why did BW move into marinas?

[Paul Evans]

If there is a need for them in areas where a commercial rate of return isn't possible, then possibly, yes. But they would have to make sufficient profit over and above the investment for that to be a worthwhile use of the monies.

 

That's the question I've asked twice now. Are BWML marinas in direct competition with other privately-owned marinas, or were they taken on by BW because stable commercial operators weren't available in those areas? Why did BW move into marinas?

 

Be careful ymu. If a commercial rate of return is not possible for a privately owned marina how coud a publicly owned version make sufficient profit to make the investment of public monies worthwhile. This was one of the problems with some nationalised industries - private enterprise could not see a profit and was only too happy to see the state (taxpayers) take them on and fund the losses.

 

I can't answer your questions about BWML marinas. I hope somebody can.

[ymu]

A return on commercial rates of interest is not the same as a return on monies invested to provide an income. Pension funds don't invest to make a profit on the shares - they invest to guarantee themselves the income they need to cover their commitments. It's a subtle difference, and I'm not saying it applies here, but government can often make a profit where commercial interests cannot - especially if the service provided is vital to the economy and has knock on benefits as long as someone is providing it.

 

I know a boatyard that takes section 8 boats away, does them up and sells them. It's better if BW can do that for themselves - although I'm not sure they do use the BWML marinas for this. If there is a demand for moorings in an area where towpath moorings cannot be provided for some reason, and no commercial operator wants to set up, then it may be better for BW to take the income than deal with illegally moored boats which need to be in the area.

 

I'm not saying any of these things apply - I just don't know.

 

Why did BW get into marina ownership? Do we have any public statement, justification, whatever?

[Dominic M]

I think the answer to that question is "No" but the Government has not, as far as I am aware, given BW/BWML funding for the acquisition of marinas. BW/BWML has used money from its own resources. I do understand that you think BW/BWML should have taken a decision to use the £4m for waterways maintenance (and I can see the strong arguments in support of that view) but had it taken that decision the Government (taxpayers) would have been no better off.

 

 

 

Ah! So we are back to Clause 4. My view is that nationalised industries - marinas included - managed effectively would do a damn sight better job than private enterprise. A nationalised industry - managed effectively - would use its "profits" for the benefit of the whole community and not to enrich the few. I know you will point to the history of nationalised industries in the UK but I will say they failed because they were mismanaged (and mainly mismanaged by Tory Governments who had no real interest in running them effectively).

 

What happens when BW is a Waterways Charity? Will you deny the charity the opportunity to make profits for the benefit of the waterways? Do you say that the National Trust should not run commercial enterprises in support of its objectives?

Ridiculous. If BW provide funding to acquire marinas it is taxpayers money. What are you seeking to defend?

[ymu]

If it makes a return, then that's a good thing for the tax-payer.It's an emotive phrase, but no substitute for an argument.

[Guest]

BWML are here with White Bear at Adlington, Ripon Racecourse and helpfully for narrowboaters......Hull !

 

mmm...

[bargemast]

 

On the Tesco point, the shareholders would indeed be cross if there was no chance of a return on the £4m, which is why it's the question of whether it's a good use of the money that should be discussed. I didn't say anything to the contrary. My point was that saying an entity using its money to build marinas distorts the market is plainly untrue. If Tesco decided to diversify even further and spend £4m on marinas would that unfairly distort the marina market? Of course it wouldn't. It's just capitalism. BW doing it is no different. If BW is not undercutting private operators then it's not distorting the market.

 

In fact, (and I can see this point going down really well!) BW is actually more restricted than private operators. Someone like Tesco could happily start running marinas, undercutting other operators using its enormous supermarket profits, put them out of business and then whack prices up. As a state owned entity BW is not allowed to do this.

 

 

 

 

Sorry, I can't see what TESCO has to do with this, if they would decide to invest £4m in a (or) canalbusiness(es) it wouldn't be done with £4m of tax-payers money, as they can't play that sort of game. So to me this compairison has nothing to do with this subject.

 

Peter.

[david and julie]

If it makes a return, then that's a good thing for the tax-payer.It's an emotive phrase, but no substitute for an argument.

 

Only if that return is equal to or better than we could otherwise get.

 

If BW get £38K rent from company A when company B are prepared pay say £100K the taxpayer is losing out.

 

I think Dominic is on the right track with MBO - the whole thing stinks - think about it logically, if these properties are to be part of the charity why go to the extra expense of separate incorporation ?

Edited March 20, 2011 by david and julie

[Dominic M]

But BW generate income from the private marina operators. New marinas hand over 9% of mooring fees, determined by the average mooring rate in their area. And they would generate further income by leasing out the marinas they have nationalised at a proper commercial rent.

 

It has been said above that if BWML were sold then the leases would have be renegotiated. BW actually state that rents they collect from BWML are fair, and were determined by an independent body. I can't recall where I read that, but I think it is a note in the BW 2009/10 accounts.

[steelaway]

Wont the new waterways charity be able to increase the rents in line with commercial marinas?

Are BW executives feathering their own nests before the charity takes charge?

 

 

[Paul Evans]

Ridiculous. If BW provide funding to acquire marinas it is taxpayers money. What are you seeking to defend?

 

BW's right to buy or build and run marinas (as long as they are managed effectively). I don't have a problem with state enterprise in principle. You do - so I guess we will have to agree to disagree on that. But you didn't answer my questions - What happens when BW is a Waterways Charity? Will you deny the charity the opportunity to make profits for the benefit of the waterways? Do you say that the National Trust should not run commercial enterprises in support of its objectives?

 

I think Dominic is on the right track with MBO - the whole thing stinks - think about it logically, if these properties are to be part of the charity why go to the extra expense of separate incorporation ?

 

BWML was set up in 2003 and the marinas transferred to it before there was any talk of setting up a Waterways Charity. I understand that when BW acquired some marinas there were suggestions that this was anti-competitive and BWML was set up so that the operation of the marinas would be transparent. Suggestions that BWML was set up to facilitate a MBO at knock down prices looks like scaremongering to me.

 

It has been said above that if BWML were sold then the leases would have be renegotiated. BW actually state that rents they collect from BWML are fair, and were determined by an independent body. I can't recall where I read that, but I think it is a note in the BW 2009/10 accounts.

 

In 2009/10 BWML paid BW £688,989 in rents (Source: BWML accounts) providing BW with a pre-tax net return of almost 4% on its investment in marinas of £17.3m (Figure obtained by Dominic M via FOI request). I don't know how that compares to rent returns generally but it exceeds anything BW would get from a bank. If the rent levels were determined by an independent body, I do not see what the problem is - unless you are suggesting that there was not an independent body.

Edited March 20, 2011 by Paul Evans

[Doorman]

 

 

A possibility exists that Robin Evans will step down within the next couple of weeks.

 

We can only hope that he trips on his way!

 

British Waterways Marinas Ltd, a private company wholly owned by BW, is to receive £4 million for the purpose of new acquisition from BW, i.e. the taxpayer. The money is interest free as it will be a purchase of shares in BWML. This was approved in a Board Meeting of BW in January, 2011.

 

Private businesses directly connected with the waterways are small affairs. None would be likely to obtain such a sum from the taxpayer. In the current climate, they wouldn't be able to borrow it either.

 

BW have already nationalised 18 marinas, which they lease to BWML at peppercorn rents - no one else was offered the opportunity to acquire those leases.

 

What are they up to, and why are they not prepared to let the real marketplace function?

 

Anyone up for a game of Monopoly?

Edited March 20, 2011 by Doorman

[david and julie]

BWML was set up in 2003 and the marinas transferred to it before there was any talk of setting up a Waterways Charity. I understand that when BW acquired some marinas there were suggestions that this was anti-competitive and BWML was set up so that the operation of the marinas would be transparent. Suggestions that BWML was set up to facilitate a MBO at knock down prices looks like scaremongering to me.

 

2003 till 2011 isn't a very long time in planning terms - especially when you know for certain that eventually a Tory Government will gain power and no doubt resume its asset disposal antics. BWML may have been set up for the reasons you give - but it also makes it much simpler to hive off.

[Dominic M]

BW's right to buy or build and run marinas (as long as they are managed effectively). I don't have a problem with state enterprise in principle. You do - so I guess we will have to agree to disagree on that. But you didn't answer my questions - What happens when BW is a Waterways Charity? Will you deny the charity the opportunity to make profits for the benefit of the waterways? Do you say that the National Trust should not run commercial enterprises in support of its objectives?

 

The National Trust is an irrelevant comparison. It is not owned by the state. It is a charity. Most of its property and land portfolio has been gifted to it. When BW becomes a charity, I would have no problem if a Marina owner decides to gift their asset to them. But I would certainly be concerned if they diverted funds they receive from donations away from the task in hand, namely the maintenance and preservation of the waterways. Using your example, the NT have not set about a programme of golf course acquisition, have they?

 

 

BWML was set up in 2003 and the marinas transferred to it before there was any talk of setting up a Waterways Charity. I understand that when BW acquired some marinas there were suggestions that this was anti-competitive and BWML was set ubut simplyp so that the operation of the marinas would be transparent. Suggestions that BWML was set up to facilitate a MBO at knock down prices looks like scaremongering to me.

 

No goverment of any hue since 1979 has been elected on a manifesto with a programme of taking private sector businesses into state ownership. So BW's actions are undemocratic. As for scaremongering, well maybe, but I think that is a little strong. It is a reasonable concern, would you not concede?

 

 

In 2009/10 BWML paid BW £688,989 in rents (Source: BWML accounts) providing BW with a pre-tax net return of almost 4% on its investment in marinas of £17.3m (Figure obtained by Dominic M via FOI request). I don't know how that compares to rent returns generally but it exceeds anything BW would get from a bank. If the rent levels were determined by an independent body, I do not see what the problem is - unless you are suggesting that there was not an independent body.

BW made a decision to put their on line long term moorings up for tender some years ago. Why did they not put the marina leases up for tender? 4% is not a great return on an investment of £17 million + but I can assure you that the rents are ridiculously low for this market sector. To make it a level playing field, why did they not invite those same independent people to review the rent levels of their many properties that they lease to the private sector. I can assure you that anyone involved in leasing from BW will tell you that an average of £38k p.a. for each of 18 marinas is laughably low.

Edited March 20, 2011 by Dominic M