The Scottish Parliament’s Public Audit Committee will launch a scathing attack on Highlands and Islands Enterprise (HIE) for failing to properly control spending on the controversial funicular railway, which has been repeatedly baled out by taxpayers’ money.
In a report, a copy of which has been leaked to the Sunday Herald, the committee will also criticise HIE for continuing to offer an “open-ended commitment” to funding the funicular. It will demand new controls to ensure that more major cost overruns are not incurred in the future.
The funicular railway, which runs nearly all the way to the summit of Britain’s fifth highest mountain near Aviemore, has been plagued with problems since it was first proposed in the early 1990s (see below). Lack of visitors has meant that it has struggled to make money.
There were many years without enough snow for skiers. But even when there has been plenty of snow, like this winter, the railway has been forced to close because it cannot cope with adverse weather.
The funicular has been shut down for 19 days since the start of this year, frustrating thousands of would-be skiers. This weekend it is closed again, with roads, car parks and buildings submerged under huge piles of drifting snow, after falls of up to two metres.
The Public Audit Committee launched an investigation into the financing of the funicular after a critical report last year by Audit Scotland. Chaired by the former Labour minister, Hugh Henry, the committee consists of eight MSPs from the four biggest political parties.
The committee’s report, which is due to be published on Wednesday, is damning. “The committee believes that HIE’s failure to review and adjust the business case before construction began reflected bad practice and was unacceptable,” it says.
“It is of the view that, as a result, considerable sums of public money were committed without a sufficiently rigorous process to evaluate the risk to those funds.”
In 1997 the funicular was estimated to cost £14.8 million to build, of which £9.4 million was meant to come from HIE’s predecessor bodies. But after it was completed in 2001, the total rose to £26.75 million, of which HIE provided £19.4 million.
The funicular was strongly backed by local politicians and “was pushed forward without proper regard to the risk to the public purse,” says the report. Part of the problem was “HIE’s determination to proceed with the project at any cost”.
Figures in the report reveal that the funicular’s operator, Cairngorm Mountain Limited, made major losses in 10 of the last 14 years, with only small profits in four years. In a bale-out operation in 2007, investors in the funicular lost virtually all their money.
Highland Council was given just £1 for the £1 million it was owed, while the Cairngorm Mountain Trust, a charity, received £1 for its £101,000 stake. The Bank of Scotland, however, received a more substantial, but still secret, sum in return for its £3.6 million investment.
The Public Audit Committee is worried that the flaws in HIE’s financial controls which allowed the funicular fiasco may still exist. “The committee is concerned that, given the history of loss-making by the business, HIE’s commitment to the project appears to be open-ended,” concludes its report.
“The committee asks HIE to provide evidence to demonstrate that its current procedures and control systems produce dependable budget estimates and reduce the risk of cost overruns of this nature for major projects.”
In December, HIE announced that it was planning to spend another £4 million on the funicular over the next three or four years to bring it up to a standard that might attract a new commercial buyer.
According to Dave Morris, director of Ramblers Scotland, the leaked report finally showed what a “disaster” HIE had been as managers of Cairngorm. “These disasters will continue for years, costing the public purse huge sums unless government ministers sort this shambles out once and for all,” he said.
“The land and all responsibilities need to be taken off HIE as soon as possible and transferred to the Forestry Commission or the Cairngorms National Park Authority. And there is no way that HIE should be allowed to waste another £4 million in the Cairngorms.”
Alan Blackshaw, a former senior civil servant who quit as a director of the local enterprise agency over the funicular in 2000, said his concerns seemed to have been validated. “It is very sad that HIE has spent the public money, and more, but failed to redevelop the Cairngorm facilities in a way which would have been more viable and less subject to closure in snowy weather.”
HIE refused to comment on Friday. “We await the publication of the committee's report and will comment at that time,” said an HIE spokesperson.
The full report from the Public Audit Committee has now been published and is available here.
The chequered history of the Cairngorm funicular
Downhill skiing first began on Cairngorm mountain, near Aviemore, in 1961. In the early 1990s, the then Highland and Islands Development Board backed plans to upgrade ski facilities by building a new funicular railway to the top of the mountain.
The £15 million plans were fiercely opposed by environmental groups, but backed by local politicians and some businesses. After a public inquiry and a high court challenge, the railway was given the go-ahead by Scottish ministers and began operating in 2001.
But the number of skiers using the railway in the winter has never lived up to expectations, partly because of declining snow cover. In 2006, the Sunday Herald reported that the project was “bleeding” public money, and that the renamed Highlands and Islands Enterprise (HIE) was trying to sell it to the Forestry Commission.
But negotiations broke down, and it was revealed that the commission had privately accused HIE of trying to hide the multi-million pound problems plaguing the railway. To prevent the private company that ran the project from going bankrupt, HIE took it over in 2008.
In 2009 the Sunday Herald disclosed the European Commission had ordered the repayment of £577,414 of grants for the railway because “illegal criterion” were used for the awarding of a construction contract. Then, in October 2009, Audit Scotland published a report which criticised HIE’s financial control of the project.