Financial risks 'ignored' in funicular plans

Published on Wednesday 7 October 2009 22:00

FINANCIAL risks were ignored by a public agency while planning the Cairngorm funicular railway, which eventually ran nearly £5 million over budget, a report said.

Audit Scotland yesterday published a review of the 17-year history of the project and the involvement of Highlands and Islands Enterprise.

HIE subsidised the building of the funicular, but had to step in to take over the railway operators, CairnGorm Mountain Ltd (CML), which had debts of more than 400,000.

Robert Black, the Auditor General, ordered the review in November. His report says the decision to build the funicular was taken after a process which met the requirements of the time.

HIE was aware of a number of risks, including limited private-sector investment and declining skiing numbers, but believed the funicular would provide a year-round attraction and bring economic benefits to the area.

However, additional risks emerged after the project was approved and HIE did not review the business case before the building work began in 1999.

The cost of building the mountain railway 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.

The report says HIE tried to manage increasing costs, but "budgets proved unrealistic".

Mr Black said: "Many of the expected benefits have been realised. However, HIE did not fully take account of new risks that emerged early on in the project, and the construction of the funicular cost about one-third more than expected."

He said HIE must learn from its experiences in developing the funicular, for which it is seeking a new operator.

The report says the project has "partly" achieved the aim of improving tourism and strengthening the economy.

While the predicted number of 165,000 non-skiers was achieved, only 63,250 of the 200,000 skiers expected were attracted.

Average profits forecast from 1998-2004 were 340,000, but became an average loss of 834,000.

CML was also to pay HIE 300,000 annually in rent. Instead, it owed 430,000 when HIE took it over.

Sandy Brady, HIE's acting chief executive, said Audit Scotland acknowledged that the funicular was a unique and complex project which had never been attempted before in Scotland.

He said he was pleased with the conclusion that the funicular succeeded in creating employment and achieving the wider economic benefits that it was designed to deliver.

But he added: "We accept that good practice in project appraisal and management has improved significantly since the early 1990s.

"HIE has already addressed this issue, and we are pleased with the review's finding that our current procedures are now more rigorous in assessing and managing potential benefits and risks associated with major projects."

Local MP Danny Alexander called the report "balanced and constructive" and said it recognises the significant part which the Cairngorm funicular had played in the area's economic development.

He said HIE must now focus on developing a business plan which was realistic "not least in respect of the impact of climate change – and fully up-to-date so that a new operator can succeed".

"It is what happens next which matters most to the continuation of the jobs and increased year-round visitor numbers which the railway has helped secure."