Monday 29 October 2007

Blinkers on and tally-ho down a tramline

Last week - on Thursday to be exact - Labour, Green, Conservative and Lib-Dem councillors on Edinburgh Council voted to go ahead with the City's tram fiasco.

Just for clarity - every councillor outside of the SNP group voted to continue with the trams lunacy after the SNP councillors laid out the case against the tram proposals, demonstrating exactly why the Final Business Case is flawed as well as why the Tram Proposal itself is flawed.

The 12 SNP councillors voted to end the project, while the 15 Labour councillors, the 3 Green councillors, the 11 Conservative councillors and the 17 Lib-Dem councillors voted to keep it going.

It's fairly clear now that the project won't come in on budget and will never make money and we'll all be picking up the tab for it for years to come.

For posterity's sake, here are some highlights of the case the SNP made:

· The Final Business Case (FBC) indicates the importance of an interchange with the rail network – a pity, then, that there will be only one stop on Princes Street and it won’t be at Waverley.

· The cost estimates were withheld from the council with the excuse of ‘commercial confidentiality’.

· Construction prices are not fixed because the design is not finalised. Increases can be expected as design changes take effect.

· The price quoted is dependent upon ‘Value Engineering’ – basically doing the thing on the cheap. Those Value Engineering innovations have not been found yet.

· The utilities diversions already underway are based on a fixed rate contract which means that the final cost will vary according to how much work has to be done. The estimate that is being used is based on the information available about the current state of the utilities and, as first results have shown, that information is woefully inadequate.

· Some utilities will have to be moved by the utilities companies. There is no way of telling just how much these utilities diversions will cost.

· Compensation for depreciation (property owners can claim compensation if their property value is affected by the tram section 32 of each tramline Act) cannot be quantified until the claims are made and settled.

· There’s no provision for noise insulation grants either (section 63 of each Tramline Act).

· Land cost estimates are subject to interest (in other words they’re guaranteed to be underestimated).

· Developers’ contributions were to be in the order of £26.6 million. The council has only banked £2.2 million – £176,000 of which came from the schools budget. The Council still has £36.6 million to find.

· The sources of funding which tie wants to plunder for building tramlines include The Cities Growth Fund (currently used for affordable housing, parks, gardens and culture); the Capital Investment Programme (thus holding back investment in other areas of council operation); and further Capital Receipts (selling off more of the city’s assets). Unfortunately, the FBC makes it clear that this is ultra viries.

· As well as having an enormous capital expenditure bill to carry, the council will have to forego the dividend from Lothian Buses (currently £2 million p.a.) for at least three years. While the assertion made is that the dividend will be adjusted in other years to compensate, a Business case which is so weak cannot be relied upon to deliver those extra resources.

· The Revenue and Risk Report demonstrates that tram revenue generated would be matched by a drop in bus revenue.

· There will never be any repayment of the capital expenditure.

· The FBC relies on revenues increasing as passenger numbers increase over a three year ‘ramp-up’, but “Experience from Nottingham and Dublin suggests that three years may be a conservative assumption.” In other words, the only way the Business Case can be made to work is by falsifying the foundations upon which it is based.

· Swingeing cuts in bus provision are planned to ensure that trams are profitable, further harming the publicly-owned bus company.

· Significant risks still lie with the public sector and may impinge directly on the council according to the FBC.

· The risk report will not be made available until after contract close – in other words when it is too late for councillors to do anything about it – for reasons of commercial confidentiality.

· Apportionment of risk remains the subject of negotiations. This means that the risk register is unstable.

· Some major risks are not included in the risk register – they’ll be reviewed after the completion of the works and the beginning of operations - honestly, I'm not making this up.

· There are a number of design related matters to be finalised – in other words they’re still working on the design. Out-turn costs will increase as a result, and tie proposes to report back on these in December before contract close (when call-off will be impossible) in January.

· The integration with the new rail station at Gogar is not included in the costs and will have to be added. These costs have not even been assessed and will need separate funding.

· I quote: “The TEL Business Plan does not specifically provide for the major replacement expenditure which will be required after 30 years.”

· Information received from the bidders confirms that the costs in the business case for the maintenance of the tram infrastructure and vehicles and half-life refurbishment “are conservative”. In other words, the costs are understated.

· I quote again - “It is a fundamental assumption that TEL’s tram operations will participate in the national concessionary ticketing scheme in a manner equivalent to that of bus operations”. We know that’s not happening (Labour refused it before the election), so we can predict a shortfall of 14.72% of the tram revenue - £500,000 in the first year of operations rising to about £1 million five years in.

· That also knackers through-ticketing as concessionees will travel on buses and not trams.

· 30% of demand between Leith and Haymarket and 50% of demand between Haymarket and the airport is from development which isn’t in place yet. In other words, the customers don’t exist.

· The council holds the risks on revenues, operating costs and the long-term maintenance of the tram system – all the issues which are suspect.

· As soon as the Final Business Case is approved (December) the agreed funding is to be released. The Council does not have it and cannot rely on the Government’s contribution because that’s released on a pro-rata basis (council has to pay about 8.25% of whatever is paid out – just over £30 million before tie comes back for more as the project runs over budget).

· If the Scottish Utilities Companies are slow in approving designs, utility diversion works will be delayed, increasing the costs of those, and the building of the infrastructure may be delayed – leading to financial penalties. Considering the records of utilities companies in getting anything done, this would seem to be rather a major risk – but it’s not quantified.

· The Infraco contract is fixed price, meaning that variations cost massive amounts of money, but the design is not yet finalised. Since the design is not yet finalised but the contract will be closed in January – by which time only ‘further work’ on the design is promised – this is not so much a risk as a guarantee of an escalation in cost. Third parties like Forth Ports can also demand changes in the design.

· The prior approvals is to be complete by March in order to avoid cost over-runs, but the contract close is in January, so not only will the planning committee be facing a massive task to approve each bit of the tramline, they will be under pressure to accept the plans as brought forward to avoid massive cost over-runs. Not only is this bad practise, it could lead to planning appeals grinding on (and causing massive cost over-runs as well as legal fees) on the perfectly understandable grounds that the planning authority was not in a position to take an impartial view. Additionally, since this will in essence be the council applying to itself for planning permission, any objection from a member of the public sends it straight up to Ministers – and that takes ages.

· Two skelps of land that are needed for the trams owned by Network Rail and BAA are being leased instead of purchased. Apart from what happens if the long leases are not renewed, the owners could close down tram operations whenever they liked – a right good waste of public money.

· Section 75 Agreements indicate that only £6.77 million will come in from developers, leaving the council having to charge Section 75 fees for years after the tramline is built.

· The two main contractors are seeking letters of undertaking from the council in advance of contract signing for full payment undertaking. This means that if the council proceeds to approve the business case it is obliged to pay the full amount – even if the tram is cancelled at a later date. It may be possible to make this subject to grant release by the Government – as suggested in the FBC – but that would still leave the council with millions of pounds committed expenditure.


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