NAO Members Questions

Below is a transcript of the written answers submitted by Arwel Roberts, Director of the National Audit Office, Scotland, in communication to the Clerk to the Audit Committee of the Scottish Parliament, in response to questions raised by members of that committee.

SKYE BRIDGE - AUDIT COMMITTEE MEMBERS' QUESTIONS

Q1. What is the forecast total of toll payments by users to be received by the Skye Bridge limited over the lifetime of the concession, expressed in cash terms?

A1. 128 million. This is the forecast total made in 1991. It represents revenues in cash terms for the purposes of preparing the financial model, which formed the basis for negotiating the contract between the Department and Skye Bridge Limited (the Company). It is the equivalent of the 24 million target revenue for the operator, measured in constant 1991 prices discounted to 1991 base year at six per cent a year, over the remaining contract period (some 12 years) noted in paragraph 2.9 and Figure 1 of our report.

Q2. What is the cost in cash terms of the 3 million attributed in Figure 1 on page 11 to "other direct project expenditure by the Department including advisers' fees, survey work, land purchases and staff costs?"

A2. 2.8 million.

Q3. What is the cost both in constant 1991 prices discounted at six per cent a year to 1991 base year, and in cash terms, of the general headings of "advisers' fees, survey work, land purchases and staff costs"?

A3. 3 million in constant 1991 prices discounted at six per cent a year to 1991 base prices. 2.8 million in cash terms.

Q4. What land was purchased for the scheme from whom, at what price and how was the price determined in each case?

A4. The Department acquired land on the mainland and on the Isle of Skye (for the approach roads) and two islands off the mainland (Eilean Ban and Eilean Dubh) which the crossing also utilises.

The National Audit Office do not know from whom the Department purchased the land required for the bridge

The Department's total expenditure acquiring land was 784,000 in cash prices. The Department negotiated the purchase price of the land with the owners. The Department's expenditure was reduced by a fixed contribution of 300,000, which the Company made under the development agreement, so the Department's net land acquisition costs were 484,000 in cash prices.

Q5. Is the 3.8 million "additional payments" in paragraph 2.9 a cash cost total or part of the 12 million in Figure 1. If the latter, what is the cash total?

A5. The 3.8 million in paragraph 2.9 is a cash figure. The same item also appears in Figure 1 (it is the fifth square-bulleted item) but expressed as a discounted real figure (i.e. on the same basis as the other items in the figure).

Q6. What did the "additional payments" in paragraph 2.9 cover and how were the totals assessed? Were they subject to negotiation?

A6. The additional payments covered the 4.4 million additional costs the developer incurred as a consequence of the public local inquiry process. There were two reasons for additional costs:

The public local inquiry recommended acceptance of the basic design proposed by the Company in their winning tender, but subject to some modifications that the National Trust for Scotland and the Countryside Commission for Scotland proposed. These concerned aspects such as the design of the main bridge span, the provision of walls on Eilean Ban and Eilean Dubh to protect the local otter population from traffic and other changes to the approach roads. Making the design changes increased the construction costs by 1.6 million.

As a result of the public local inquiry process the developers were unable to commence construction until July 1991, four months later than planned. This added 2.8 million to construction costs, because of the shortened summer construction period in 1991 in the remote and exposed location.

The Department accepted the increased costs on the basis of the Company's detailed claim. The Department subjected the claim to the normal necessary technical scrutiny and investigation. They agreed 3.8 million of the additional costs in negotiation with the Company. The Company considered that additional compensation was due to them and pursued a further claim through arbitration, as the development contract permitted. They were awarded a further 0.6 million as a result of the arbitration that was completed in 1999.

Q7. What is the cost of a possible buy-out of the contract, and would this represent better value for money for the tax payer than the current open-ended commitment?

A7. The National Audit Office do not have the information to make a good estimate of the cost of a possible buy-out. This would be a matter for negotiation between the parties. However it is clear that the likely costs of a buyout to the Scottish Executive Development Department (the Department) could be significant:

If toll orders are varied the contract between the Department and Skye Bridge Limited (the Company) provides for them to agree changes "in order to put the parties as nearly as practicable in the same position as they would have been had no such toll change occurred". However buying out the tolls completely would likely result in termination of the contract. In that event the Company could seek to claim full compensation under the contract in order to meet all their outstanding liabilities, in particular their outstanding debt, arising from the development and concession deal.

We note that the Company's latest accounts filed with Companies House (for the year ending 31 December 1998) show they had at that time significant outstanding debt, some 23 million, falling due after more than one year. Although since that date the Company will likely have repaid some of this debt the accounts disclose that these loans are repayable over varying periods terminating between 2006 and 2012, so we doubt that the sum outstanding has subsequently changed very significantly. The Company may subsequently have incurred other liabilities.

There appears to be little against which the Company could offset this outstanding debt immediately. From their accounts their net current assets at 31 December 1998 were some 2 million. As regards fixed assets the bridge has remained at all times the property of the Secretary of State and has no value to the Company for the purposes of their accounts. The main asset of the Company is the right to charge tolls, but this of course would have no realisable value if the contract were terminated and the tolls discontinued


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Copyright Ray Shields, 2000.

Most recent revision, 16 April 2000