Mp/8/C.1 Appendix 1 Background Note
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MP/8/C.1 APPENDIX 1 BACKGROUND NOTE: THE CHARGING REGIME FOR DISCHARGES TO THE MANCHESTER SHIP CANAL 1 Introduction 1.1 This note explains the charging regime for discharges to the Manchester Ship Canal (MSC). It first summarises relevant history in relation to the finances of The Manchester Ship Canal Company Limited (MSCCL) (section 2), outlines the capital costs (section 3) and then outlines the current income in respect of the operation of the MSC (section 4). 1.2 MSCCL operates a system of discharge agreements with third parties wishing to discharge into the MSC. The basis of this regime is set out in section 5 and the calculation of its application to Eccles Wastewater Treatment Works (WwTW) is found at section 7. 1.3 In its Statement of Case1, United Utilities Water Limited (UUWL) refers to the fact that MSCCL demands the payment of money for a right to discharge into the MSC, describing this as a ‘ransom’. This note sets out MSCCL’s position by reference to the commercial market for discharge agreements, and explains the approach adopted to the appropriate charge to apply to the right to discharge that UUWL wishes to acquire. 2 History of the Manchester Ship Canal Company Limited 2.1 It is of relevance to this matter that the Inspector understands the historic context of the financial model of the MSCCL and how this now operates as a commercial entity in the 21st Century despite the framework in which it exists. To that end, this note sets out some of the history to the finances and management of MSCCL which form the background to the current operations. 2.2 MSCCL is a statutory company, incorporated by the Manchester Ship Canal Act 1885 (the 1885 Act). As such all of its rights, powers and duties are derived from that and subsequent Acts and Orders (and general legislation which applies to all companies). For example, MSCCL’s ability to borrow money was limited to any specific money raising powers in its constitution and subject to limits set by that and subsequent Acts. 2.3 Under the 1885 Act, MSCCL was given a specific power to borrow up to £2M to help fund the construction of the Canal. In reality, due to the scale and size of the project this money soon ran out and further borrowing powers were passed in later acts of 1890, 1891, 1893, 1904, 1913, 1925, 1 Paragraph 10.12 of CD/CPO/7 MP/8/C.1 1949 and 1956. Money was particularly needed during the construction phase of the Canal which went on until 1894. MSCCL created various debentures and these were largely supported by the then Manchester Corporation (which later became Manchester City Council). 2.4 The Manchester Corporation had long supported the proposed Ship Canal and the Corporation lent at first £3M and then a further £2M during the construction phase. This loan of £5M became permanent and irredeemable by virtue of the Manchester Ship Canal (Finance) Act 1904 (the 1904 Act) which also provided for the issue of £1.06M preference stock to the Corporation in satisfaction of unpaid interest on existing stock. 2.5 From a constitution and management perspective, the 1904 Act also made permanent the Corporation’s power, first conferred in 1893, to appoint a majority of the directors of MSCCL including the Deputy Chairman. Therefore although MSCCL remained listed on the Stock Exchange, its Board of Directors were not appointed solely by shareholders but a majority appointed by the Manchester Corporation giving MSCCL a quasi-public body outlook. Its role therefore encompassed, in addition to its commercial interests, consideration of the greater good for the prosperity of the North West in attracting businesses to the area and improving public services such as the drainage network. 2.6 Over the years, the Manchester Corporation continued to provide significant financial aid to MSCCL. In 1914 they lent a further £0.7M and in 1951 lent support to interest payments on £5M borrowed to fund the construction of the QE II Dock at Ellesmere Port at that time. 2.7 In the late 1980s, after the Peel Group had become the majority shareholder in MSCCL, discussions were held with Manchester City Council and agreement reached for all of its debentures to be repaid at par which amounted to £7M, and the City Council gave up its powers to appoint directors to MSCCL. This was enshrined in a Harbour Revision Order passed in 1990. In many ways, therefore, MSCCL only began to take on a fully commercial outlook from this time onwards and particularly after all the minority shareholders has been bought out in 1993. 3 Capital costs 3.1 There are substantial capital costs associated with the MSC’s long term maintenance and upkeep. As set out in Steve Gavin’s evidence (section 5 of MP/6/A), the canal banks and Barton Lock are significant and sensitive assets. 3.2 Over the period March 2012 to March 2017, the average cost of maintenance excluding labour has been £1.4M. Annual running costs were, broadly speaking, c£12M per annum from 2014 to 2017 with additional capital expenditure on assets owned by the MSCCL ranging from £2M to £5M in the same time period. 2 MP/8/C.1 3.3 Details of dredging requirements and maintenance are set out in Joe Blythe’s evidence (section D of MP/7/A). The costs associated with dredging and maintenance are variable year on year however, they can be summarised as follows: 3.3.1 Dredging varies from £1.2M to £1.9M per annum in the main due to variations in weather and traffic. These costs include related costs (in the region of £20,000 to £50,000 per annum) such as licences and permits for landfill at Frodsham / Woolston for disposal of dredgings and discharge consents for run off from the deposit grounds and related surveying. 3.3.2 Over the period March 2012 to March 2017, the average cost of dredging has been £1.5M per annum. 3.3.3 Maintenance work ranges from £1.3M to £1.5M per annum. This excludes engineers’ salaries and any apportionment of overhead costs and relates to direct maintenance expenditure only i.e. spare parts, tools and consumables. The labour cost averages approximately a further £1.3M per annum. 3.3.4 Other costs associated with operating the MSC are largely in the form of third party labour. This includes Pilotage at c£1.6M per annum, Towage at c£1.2M per annum and operation of the various locks along the canal at c£1.2M per annum. 4 Other income 4.1 As set out in the MSCCL Schedule of Port Charges 2018 at MP/8/C.1.1, a number of considerations affect the setting of port charge rates levied upon canal users (including rates for the utilisation of the MSC, available services and associated infrastructure): 4.1.1 MSCCL cannot charge commercial traffic using the MSC more than a competitive, commercial rate (as such traffic would go elsewhere). 4.1.2 In respect of Ship Dues, Good Dues and Passenger Dues (the latter two being called Canal Tolls by MSCCL), persons having a substantial interest in those charges may object to the Secretary of State if they believe that the charges should (in general) not be levied at all or should be levied at a lower rate. Section 31 of the Harbours Act 1964 (the 1964 Act) details the process which is followed in respect of such objections. 4.1.3 Pilotage charges have to be reasonable and are subject to the same right of objection to the Secretary of State as Ship Dues, Good Dues and Passenger Dues. Sections 10(1) and 10(6) of the Pilotage Act 1987 refer respectively. 3 MP/8/C.1 4.1.4 Charges other than those in respect of Ship Dues, Good Dues, Passenger Dues, Pilotage, operating ferries and certain water licensing charges issued by a Statutory Harbour Authority must be reasonable in accordance with s.27 the 1964 Act. 4.1.5 In respect of MSCCL and the Harbour and Port of Manchester, s.178 of the 1885 Act states that MSCCL may make reasonable charges for work done, services rendered and facilities afforded. 4.2 MSCCL publishes its Port charges annually, subject to a right to review the charges more often if necessary. Charges are generally increased on an annual basis in line with inflation (RPI all items). However, if for example MSCCL assesses that costs are increasing or are likely to increase at a level exceeding inflation, then charges may increase by a percentage exceeding that of the current rate of inflation. 4.3 Pilotage charges are assessed in the same way. By way of example, the cost of providing the underlying Pilotage service generally increases in line with inflation, albeit that is kept under review. However, MSCCL now has additional liabilities in terms of contributing towards the Pilots National Pension Fund (PNPF) shortfall. As such, since 2013, Pilotage charges have increased by more than the prevailing rate of inflation and more than the underlying increase in the cost of providing the day-to-day service to take account of the additional PNPF liabilities. 4.4 Ship Dues, Good Dues and Passenger Dues are in effect a form of taxation and the charges issued do not have to be in proportion to the service/facility which a particular customer enjoys directly. In essence, the general costs of managing, maintaining and improving the Port are spread amongst all port users on the basis of size of vessel entering the Port and tonnage of cargo imported/exported.