Residents of Cromarty on the Black Isle had feared for the future of their summer link to Nigg, which avoids a 39-mile detour round the Cromarty Firth.
The ferry can carry just two cars and 12 passengers but is seen as important for tourism, including as an offshoot from the North Coast 500 driving route.
Highland Council had planned cutting £10,000 from its £70,000 funding of the service, to be recouped by increasing fares.
However, The Scotsman has learned that officials had originally proposed to remove the subsidy completely.
The Cromarty Community Development Trust said prices were already the highest per mile in Scotland, of £9.50 for a car and driver one way over the 0.7 mile crossing.
The trust also pointed out it had completed a £300,000 upgrade of the ferry slipways last year thanks to a Scottish Government grant, which had involved hundreds of hours of unpaid work by its members.
Councillors have now agreed to replace the £10,000 subsidy cut through local grants.
The Highland Ferries service did not operate last year because of the Covid crisis but may resume between May and September if travel restrictions are eased.
Fraser Mackenzie, one of the trust’s directors, said: “There was a real threat the ferry just wouldn’t run at all.
"We are pleased the council reacted so swiftly and positively when we highlighted the wider negative consequences of their proposal to cut the ferry subsidy.
"As well as being a really useful service which saves a lot of road miles, the crossing is itself also a lovely trip, with the contrasts of wildlife, massive industrial structures and the unique landscape of the Sutors all in one 15-minute journey.
"I’d encourage anyone who hasn’t done it to add the trip to their bucket list.”
The trust had described the planned subsidy cut as “completely misguided and utterly counter-productive”.
In a submission to councillors, it said: “The reduction in subsidy may actually result in Highland Ferries simply not operating the service at all during 2021 - which is a real possibility given the current uncertainties over the economy reopening in a timely manner.
"The ferry subsidy is a drop in the ocean compared to the tens of millions of pounds, if not hundreds of millions, that has been dispersed by the council to Covid-closed and Covid-affected businesses.
"Highland Ferries’ Cromarty-Nigg operation did not avail itself of any government support and the crew were not furloughed.
"It also seems entirely counter-intuitive for the public sector to invest in the infrastructure required to run the ferry and to then shoot themselves (and us) in the foot by cutting the operational subsidy immediately after the construction has finished.
“Many Covid-impacted businesses in Cromarty and nearby communities, including hotels, B&Bs, shops and pubs benefit significantly from the ferry and their recovery will be diminished by not having the ferry there."
The trust said continued operation of the ferry was also vital to its longer-term plan for the service to be operated by a larger vessel which could accommodate camper vans and be able to operate over a longer season.
A council report had stated: “The savings proposal is to re-negotiate the contract with the ferry operator to put in place increased fares that will reduce the overall ferry contract price by £10,000.
"This will be recouped by the ferry operator by these increased fare prices.
"This is a seasonal service, used largely by tourists.
"The ferry contract costs £50,000 a year and there is reimbursement for concessionary fares totalling around £20,000.”
Council officials’ recommendation was to “renegotiate a fare scale with the contractor to increase fares revenue and allow a reduction in contract cost.
“This is likely to include increasing the vehicle fares and/or removing the discounted return fare.
"A reduction of the scale proposed should not impact the service, due to the anticipated increased fares revenue.
Highland Council tourism committee chair and Black Isle councillor Gordon Adam said: “Most councillors on both the Easter Ross Committee and the Black Isle, Dingwall and Seaforth Committee have agreed to mitigate this reduction in subsidy by awarding £5,000 from each of their local Place Based Area Grant allocations.
"This decision will be ratified at the next area committee meetings.
"The initial proposal was to cut the subsidy altogether as it is not a statutory obligation for the council to provide it.
"I and others opposed this and after a lot of discussion we came up with the compromise that £10,000 would be cut and the fares for cars would rise.
“I am very pleased a way has been found to restore full funding for the ferry.
"It has become increasingly popular over the past few years and it is key for local businesses on both sides of the Cromarty Firth.
"It is an attractive loop to the North Coast 500 route, and it is integral to the Pictish Trail which we hope to develop.”
Highland Ferries owner Dougie Robertson said: “We are looking forward to bringing the ferry up the Caledonian Canal, and starting operations in May, or as soon after that as restrictions allow.”
Black Isle councillor Craig Fraser said: “I am relieved that a working solution has been found.
"This will be a big relief for businesses that rely on tourist spend on both sides of the Cromarty Firth.”
Local SNP MSP Kate Forbes, who is also the finance secretary, said: “The Cromarty to Nigg ferry is the last remaining ferry service on the east coast of Scotland, and I am delighted the Scottish Government’s rural tourism infrastructure fund meant the slipways at both sides of the crossing were made fit for purpose and thereby allow the ferry to continue."
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