Progress in the maritime sector could be key to a swift recovery in the Faroes, spearheaded by infrastructure development and offshore oil and gas — yet unexpected levels of success in some areas highlight gaps in the legislation.
Whereas awareness of the financial crisis of 2008 spread instantaneously throughout the world, triggered by news of the Lehman collapse, the actual effects in financial terms are taking time to filter through at varying pace, depending on business sector, geography, and socio-economic reality.
The Faroese are generally speaking well aware of international affairs, yet at the same time popular consensus would have it that socio-cultural changes occurring in the Western world usually happen 20 years later in the Faroe Islands. That perception may have changed considerably in recent years, however, with any 20-year gap dramatically reduced in tandem with the spread of new technologies, online social networks, and any number of factors collectively known as globalization.
As for the Faroese economy, the slide into recession several months into 2009 was inevitable, although the severity experienced, at least so far, has been little compared to what neighboring countries have been through, most particularly Iceland.
As banks tightened their credit policies and the urge to hold back gripped leaders at all levels, something reminiscent of a state of limbo seemed to engulf much of the business community, weathering the storm.
Come 2010, the situation seemed much improved. In fact, since 2008, significant developments have been taking place, not least in road and port infrastructure and in the maritime sector, so much so that bringing maritime regulations up to international standards has become high priority.
Underwater, overhead: The most significant infrastructure development project — indeed, the largest single project ever to be undertaken in the Faroes — is the 1 billion dkk (134.37 million eur) submarine tunnel system known as the Skálafjarðar Tunnilin (the Skálafjord Tunnel). With final permission to proceed expected in the first half of 2010, the system will interconnect the eastern and western sides of the Skálafjord with the capital Tórshavn, saving commuters time and money while reducing emissions and maintenance costs. A very large proportion of the population of the Faroes is poised to reap the benefits as most of Eysturoy and Klaksvík, in addition to the Tórshavn region, will be affected. Interestingly, the initiative came from the communities around the Skálafjord — Runavík, Toftir, Strendur, Skála — with construction project and financing to be undertaken by a consortium of private and municipal interests.
Another project which has been underway for a long time is the extension of the Faroe Islands’ only airport. Construction work was set to begin in the spring of 2010, around the time this publication went to press, to be completed by the end of 2011. The 412 million dkk (55m eur) project, mostly funded by the ‘Investment Fund for the Faroe Islands’ — i.e. old Marshall Plan money — will add 550 meters to the existing 1250-meter runway and expand the airport terminal.
Vagar Airport chief executive Dávid R. Hansen told the Faroe Business Report: “The extension is a significant leap forward and will make it possible for the airport to handle larger aircraft. This in turn will enable operators to bring larger numbers of passengers per flight, which again will generate more revenues per flight. That, we believe, will ultimately make it possible for airlines to offer tickets at lower prices.”
The envisioned perspective: the extension of the airport will help boost tourism, making flights to and from the Faroe Islands less costly, attracting new operators to allow for competition among airlines.
While an 1,800-meter runway will certainly enable more types of aircraft to land and take off at Vágar, which in turn means potentially more passengers per flight, skeptics point to a darker side: that this may, in the absence of competition, lead to less frequent flights and no reduction of ticket prices as investments in new and larger aircraft will have to be paid for.
Still, as protagonists argue, higher capacity will by itself at least constitute progress and make it practically possible for operators to generate more revenue.
Only a few hundred kilometers southeast of Faroe, Scotland’s Loganair, a Flybe franchise carrier, has built an air traffic infrastructure that interconnects Shetland, Orkney, the Western Isles, and the Isle of Man with mainland Scotland and England as well as Northern Ireland and the Channel Islands. While some of the routes included can hardly be operated on a purely commercial basis, the system has received government aid to secure its financial basis.
Raising the bar: Meanwhile offshore oil and gas exploration activities continue with significant action taking place in Faroese territory within the next three years: this summer’s drilling of the Anne-Marie prospect operated by Eni, followed by two more exploration wells operated by Statoil.
For the Port of Runavík — and indeed for the Faroese community as a whole — such commitments by themselves are seen to promise important economic input.
Yet Runavík’s larger vision involves an international supply base that will cater to the oil and gas industry in areas beyond the Faroes, most notably West of Shetland on the UK side of the border.
“Activities in the Faroese Continental Shelf are still very limited,” said Eli Lassen, managing director of Runavík’s Atlantic Supply Base. “What we should consider, however, is that the Faroes are located strategically in relation to oil and gas fields in the UK Continental Shelf as far as concerns operations West of Shetland and elsewhere in the northern North Atlantic including northeast Iceland.”
Recent developments in the Faroese ports and shipping sector include the new container terminal at Kollafjørður and harbor developments at Fuglafjørður featuring a new bunker facility. While these increase the capability of the Faroe Islands to become a player in the maritime industry, both Kollafjørður and Fuglafjørður have been hit by drastic cuts in the quota for the internationally managed blue whiting fishery.
This damage could be offset by Kollafjørður’s newly reopened processing plant for pelagic food fish and the surprising success of Fuglafjørður’s new bunker facility.
The latter, however, has alerted authorities to review aspects of maritime regulations, in particular with regard to contingency planning and emergency management, including questions of liability in connection with marine pollution. Further highlighting the Faroe Islands’ maturing maritime sector, the country’s open ship registry, the FAS, has been given a dedicated office and staff to support its efforts to attract international merchant fleets.
Said FAS managing director Tommy Petersen: “We’ve built an uncomplicated, competitive, and transparent registry that is managed by a lean organization, offering shipowners a service that is smooth and effective.”
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