Public Audit Committee criticises enterprise body over Cairngorm funicular railway

03/03/2010

Highlands and Islands Enterprise (HIE) is facing serious criticism from a Scottish Parliament committee over its failure to identify and act upon key financial and operational risks in its management of the Cairngorm funicular railway project.

In its report Review of Cairngorm funicular railway, published today, the Public Audit Committee said the enterprise body’s failure to take account of the risks was a key factor which led to spiralling construction and running costs.

HIE was criticised for:

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

The committee examined HIE’s decision to purchase CML in 2008 and while it accepted the reasons for buying out other shareholders, it found that a sum paid to the company’s banker for its stake was the subject of a confidentiality agreement.

Following HIE’s appearance before the committee, the enterprise body sought and received permission from the bank to release the figure to the committee.

The initial estimate for the construction of the funicular railway was £14.8 million.

To date, over £26 million has been spent on construction and providing support to CML.

The committee was also concerned about the scope for HIE to transform the funicular into a profit-making operation and withdraw its financial support for the facility in the future.

Committee Convener Hugh Henry MSP said: “We find it unacceptable that HIE did not review its business case before construction began to ensure that the project was proceeding on a realistic basis and the risks to public funds were minimised.”

"The committee was initially frustrated that its ability to hold HIE to account for the use of public money was compromised by the confidentiality agreement between HIE and CML’s banker.

"We are pleased that the bank agreed to allow this figure to be publicly scrutinised and, in our report, we recommend that the Scottish Government looks at ways in which the transparency of the use of public funds can be promoted”.

He added: “The committee remains concerned about HIE’s apparently open-ended financial commitment to the funicular.

"The potential for HIE to conclude its operational responsibility for the funicular hinges on its ability to transform the business and we therefore urge HIE to ensure that its future business plan for the facility is founded on accurate performance information and that rigorous financial-control measures are adopted.”

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