News

MSP's Damming Cairngorm Funicular Audit Published

Cairngorm railway under further fire as MSPs claim profit is unlikely

Robbie Dinwoodie, Chief Scottish Political Correspondent

The Herald, 4 Mar 2010

The Bank of Scotland’s  £3.6 million investment in the ill-fated Cairngorm funicular railway was bought out by Highlands and Islands Enterprise for just £145,000, it has been revealed.

But the Scottish Parliament’s Public Audit Committee still says HIE was directly to blame for failing to take account of the risks, which resulted in spiralling construction and running costs, initially estimated at £14.8m but now running at over £26m.

Convener Hugh Henry said HIE’s handling of the project was unacceptable. He also spoke of the committee’s frustration at a confidentiality agreement with the operating company’s bankers, which initially made it difficult to hold HIE to account for its use of public money.

However, HIE sources said the deal with the bank amounted to outstanding value for the public purse.

Mr Henry spoke of concern about the “apparently open-ended financial commitment to the funicular”  and demanded that HIE ensured its future business plan permitted rigorous financial control.

The report criticised HIE for failing to scrutinise the financial health of the railway’s operating company, CML; for not taking into account the potential effects of climate change or the risks associated with construction of the project; and for failing to re-examine assumptions made in the original business case about visitor numbers.

While MSPs accepted the reasons for buying out other shareholders in CML in 2008, they found that a sum paid to the firm’s banker for its stake was the subject of a confidentiality agreement.

Later, HIE received permission from the bank to release the figure to the committee.

The MSPs said they saw little scope for the funicular moving into profit and ceasing to be dependent on public funds. Mr Henry said: “We find it unacceptable that HIE did not review its business case before construction began to ensure the project was proceeding on a realistic basis and risks to public funds were minimised.”

He said the committee’s attempt to hold HIE to account for the use of public money had initially been compromised by the confidentiality agreement.

“We are pleased the bank agreed to allow this figure to be publicly scrutinised,” he added. “We recommend that the Government looks at ways in which the transparency of the use of public funds can be promoted.”

HIE’s acting chief executive, Sandy Brady, said he recognised the criticism of earlier decisions surrounding the development

Quango doled out millions of taxpayers' cash without proper checks

The Scotsman 4th March 2010

A PUBLIC agency was determined to push through the controversial Cairngorm funicular project at any cost and without properly regarding the risk to the public purse, according to MSPs.

The mountain railway opened in 2001 nearly £5 million over budget and funding to date is £12m more than originally expected. Another £4m is planned to be spent on the facility. 
 
Yesterday, the Scottish Parliament's public audit committee published a highly critical report on the role of Highlands and Islands Enterprise (HIE) in the project. 
 
It follows a previous critical report last year from Robert Black, the Auditor General for Scotland, who said HIE had ignored financial risks during the planning of the railway. 
 
HIE subsidised the building of the funicular, but in 2008 had to step in to take over the operators, CairnGorm Mountain Ltd (CML), which had debts of more than £400,000. 
 
The committee said HIE failed properly to evaluate a number of significant risks, including the viability of CML and the possibility of a decline in skier numbers, at the outset of the project. 
 
Additional risks emerged after the project was approved, but, says the committee, HIE's failure to review and adjust the business case before construction began in 1999 reflected "bad practice and was unacceptable". The cost of building the funicular was put at £14.87m in 1997, but this rose to £19.54m. With other support provided to CML since 2001, the total cost was £26.75m, of which £23m came from the public sector. 
 
HIE has since said it plans to retain ownership of the mountain railway for another two to three years, before seeking a new operator or buyer. 
 
In the meantime, it will spend up to £4m on repairs, maintenance and upgrades. 
 
In its report, the committee said: "Failure to take account of the risk associated with trends in visitor numbers at the point of commitment to the project is indicative of the determination locally to proceed with the project and the political interest in the local economy which existed at the time. 
 
"The combination of these factors meant that the project was pushed forward without proper regard to the risk to the public purse." 
 
MSPs on the committee also criticised the "inadequate and unrealistic" contingency for the project. It was originally set at £645,000, but reduced to £7,667 following the higher than anticipated cost of the buildings. 
 
The report says  
 
a new business model must be developed for the funicular, with plans "based on sound, realistic performance information and employ rigorous financial control measures". 
 
Sandy Brady, HIE's acting chief executive, said the agency stuck to Scottish Executive guidelines at the time, but it accepted that "good practice in project appraisal and management has improved significantly since the early 1990s". 
 
He added: "HIE is committed to its responsibility to maintain the safe infrastructure of the facility and to put in place a financially sustainable business model which enables the resort to continue increasing its contribution to the local, regional and national economy." 

Some other good links:

Highland agency under fire for ‘bad practice’ over mountain railway - Sunday Herald, 28 February 2010

HIE under fire on funicular funding - Strathspey and Badenoch Herald 3 March, 2010

Cairngorm funicular severely criticised by Public Audit Committee - Caledonian Mercury March 3, 2010