Council's tram figures don't add up

Published on Sunday 3 July 2011 15:37

I HAVE spent nearly 30 years dealing with infrastructure projects and finance around the world, including tram and railway projects. From this experience, I would observe that the costings presented by City of Edinburgh Council (your report, 23 June) for resolving the tram fiasco make no sense.

They would not be regarded as satisfactory by any serious international financial institution. Nor is it obvious that any of the variants, least of all the option chosen, can be financed without a massive burden on local taxpayers.

First, anyone who claims that it would cost more to abandon the project than to complete it to Haymarket is either (a) fudging the figures or (b) so incompetent in managing contracts that they should not be trusted to oversee the work. In either case, why should anyone believe that the difference between completion to Haymarket and to St Andrew's Square is reliably estimated at 70 million?

Sadly, the money that has already been spent - about 460m - has to be written off as a bygone. It is simply incredible that the net cost of immediate abandonment would exceed 200m - the amount spent on infrastructure to date - since spending on many items would not be affected. The additional cost of completion to Haymarket would then be at least 40m and completion to St Andrew's Square at least 110m.

If the council's figures are correct, it will earn a gross return of 2m per year from the St Andrew's Square option - a pretty poor investment. Using the standard Treasury discount rate of 3.5 per cent in real terms and a typical asset life of 40 years, 2m per year would justify capital spending of about 42m. If the investment has to be financed by a 30-year loan, then the surplus could only underwrite investment of about 36m.

No serious lender would consider financing completion of the project on the so-called business case that is presented. Project sponsors are never willing to admit failure, but rarely have I come across such a clear illustration of the aphorism: when you find yourself in a hole, the first thing to do is to stop digging.

PROF GORDON HUGHES

School of Economics

University of Edinburgh

I AM sure I am not alone in being saddened by the continuing criticism of the Edinburgh tram project and the ill- judged comparison with other major projects.

The M74 extension originally estimated at 200m. After more detailed investigation and design, a firm contract of 458m was obtained. The total cost of 692m presumably included land purchase, relocation of businesses etc. At no time was a cap put on the cost of this project.

The tram project could not, in a similar way, obtain firm contract prices for all the works because of the nature of below-ground civil engineering re-routing of services etc. The greatest mistake was to put a financial cap on the project cost at 540m.No responsible engineer would have said that the project started on a fixed price because of the unknown factors.

A good comparison is the tram project in Dublin. Similar problems were experienced at the start of the project, but it continued to get the support of the Irish government and the completed cost was three times what was expected.The trams have helped make Dublin an attractive European capital which makes Irish citizens proud. They do not carp on about the cost ,the disruption or the delay.

Is it too much to ask that all serious-minded politicians come together and give their support and financial backing to complete the project so we can all be proud of what is essentially an engineering project which will be a credit to Scotland?

C SCOTT

Mortonhall Road,

Edinburgh

I SEE that Edinburgh council is advertising for a new position of "Director of Corporate Governance", whatever that may be, at a salary of 132,000pa (Recruitment, 1 July).

Whilst staring into a 300m black hole on the tram disaster, what kind of thinking goes on in the ivory towers of the council? It would seem to me that the council should be doing all it can to economise before embarking on fresh money spending schemes of doubtful value, particularly in these straitened times.

WG Watson

Spoutwelld Drive

Scone, Perth