… as trustees approve project handover
By NEIL RIDDELL
Shetland Charitable Trust has finally agreed to reimburse the council for its expenditure to date on the Viking Energy windfarm after trustees sanctioned an initial £2.25 million draw-down on its budget for taking the controversial project to the stage of submitting a planning consent application.
Trustees rallied behind the £500 million project – which would involve building 150 wind turbines in the north and central mainland in a joint venture with energy giant Scottish and Southern Energy (SSE) – at a specially reconvened meeting of the trust on Wednesday afternoon and the expenditure, from a previously agreed budget of £3 million, was waved through without too much in the way of protest.
It was the third time trustees had been asked to take a decision on the matter after it was deferred in December and then again last month because of many councillor-trustees’ fears over a potential conflict of interest in transferring a financial liability from the SIC to the trust.
Somewhat ironically, there are now an increasing number of voices suggesting that the option of a joint ownership of the community’s stake should be held between the council and the trust, meaning trustees could be asked to vote to sell back part of the stake they have just acquired in the project.
The council’s 40 per cent share in the project was transferred to the trust in September 2007, but after the two deferrals the SIC – which has spent £1.74 million on the project to date – had recently come under criticism from anti-Viking Energy campaign group Sustainable Shetland for continuing to meet the costs of a company in which it no longer retained a direct interest.
But having had an informal seminar on the conflict of interest issue last week and with 15 of the 22 councillor-trustees present at this week’s meeting, only four said they still felt unable to take part in the vote – one of whom was trust chairman Bill Manson, purely because of his involvement in Viking Energy Ltd (VEL) itself. The others were Alastair Cooper, Allison Duncan and Florence Grains, who all declared an interest and said they would not be voting.
Mr Manson vacated the chair “for the sake of public perception”, though having taken “careful advice” from the trust’s lawyer he said he was satisfied that he could still take part in the meeting. Absent were independent trustees John Scott and Valerie Nicolson, along with councillor-trustees Gussie Angus, Iris Hawkins, Andrew Hughson, Rick Nickerson, Frank Robertson, Cecil Smith and Allan Wishart.
One of the strongest backers of the giant 550MW community windfarm in the Town Hall chamber was councillor-trustee Josie Simpson, who spoke frankly about the importance of generating new sources of income for Shetland. “Can we not afford it?” he asked. “This is a very big project to get revenue back into our community, but [I think it is] a risk worth taking. We can keep putting off, but time is not on our side. I think we have to press ahead. If we’re seen to be dithering … SSE are going to lose confidence in us.”
A number of other councillor-trustees, including Betty Fullerton and Caroline Miller, were equally eager to get on with moving the project to the next stage, while trust financial controller Jeff Goddard and general manager Ann Black succeeded in reassuring Jonathan Wills over some significant details which had been causing him concern.
Dr Wills had asked if the trust was able to afford the project when it was overspending by in excess of £1 million on its annual commitments and also queried what proportion of the community’s proposed £250 million investment would have to be borrowed, what the necessary loans would be secured against and whether some of the trust’s own assets could be liable.
Mr Goddard said the initial investment represented only around two per cent of the trust’s overall value, and that speculating to accumulate meant that in his view the £3 million was affordable. He also pointed out that the trust’s fund managers regularly invest sums of that order in speculating on emerging markets on the grounds that it is a justifiable risk.
He said now was the time to sanction the spending because the structure of Viking Energy was “messy” and trustees were “not sending the right signals, not least to SSE”. It is expected that the long-awaited consent application will be ready for submission in the next few weeks.
Mr Goddard said the “working assumption” was that around £50 million of the trust’s £250 million contribution to the project would come directly from its reserves but that it would be a stand alone project securitised against the windfarm itself, and that no care homes or leisure centres would have to be put up as collateral.
Ms Black pointed out that the trust was trying to adopt a “two-prong approach” to tackling the unsustainable level of spending, by both cutting back on expenditure and finding new income streams, chiefly the windfarm project.
Council convener and trustee Sandy Cluness said he felt the windfarm was a project which should have been taken further down the road by the SIC in the first place and that, once factors like the number of turbines required and how much the project is going to cost have been determined, it would be worth reviewing what the respective shareholdings of the trust and council will be.
He does not feel that investing £50 million of the trust’s funds alone would be a wise course of action and has now been led to believe that, contrary to initial suggestions, the council could in fact have a substantial stake in a company which sells energy.
“Whether the trust is the right vehicle for the long term, I’m not so sure,” said Mr Cluness. “The best way to protect the interests of the community is to have the majority for the shares in the local authority. There’s no reason why a local authority shouldn’t invest in energy – in effect we did that with Sullom Voe, so I think that was a misunderstanding.”
Mrs Grains, however, continues to harbour concerns and said she wanted to see a report setting out the difference between an ordinary planning application and the section 36 consent which the Viking Energy project is seeking from Scottish ministers.
She said she wanted reassurances that the environmental impact assessment and other important studies would be as thorough as under usual planning guidelines. “I’ve never been able to get that,” she said, and despite assurances from other trustees about the level of detail such assessments have to go into, she was “still worried”.
Mr Cluness said he remained to be fully convinced of the need for as many as 150 turbines and that it would depend on the cost of an interconnector cable to link up with the national grid on the Scottish mainland. He said: “It may be that we don’t need as many [turbines] – we have to try and get, if possible, reasonably-priced energy for the Shetland community first; thereafter if we determine if the interconnector goes ahead what level of income we would want, we might not need to take such a large share.”
While the trust is keen to let the dust settle after eventually succeeding in getting VEL capitalised, it is anticipated that a thorough investigation of joint ownership of its stake will take place. A great deal of detailed work on the financial package will have to be undertaken in the next 12 months with a view to planning consent being achieved and a plethora of options remain on the table.
At Wednesday’s meeting Dr Wills raised his fear about the possibility of a “revenue gap” in the years between making the major investment in the windfarm and the time when the revenue – projected to be in the region of £18 million a year – starts flowing into the trust’s coffers.
The trust currently has around £135 million invested on the stock markets and its policy is notionally based around spending only the interest gained on those investments. But a drawdown in the order of £50 million over the course of the approximate four-year construction period would substantially reduce its stock market returns in the interim, even if the good times return, and could potentially jeopardise the services – including care homes, the recreational trust, amenity trust and Shetland Arts – which the trust provides.
Along with the option of asking the council to shoulder the burden, one way to tackle the gap in revenue would be to sell a portion of the community’s 50 per cent stake in the Viking Energy partnership – if it gains consent, the project will immediately spiral in value from the £6 million (£3 million apiece from the trust and SSE) invested to take it to that stage. Such a move would allow the trust to get some cash up front and still get a decent, albeit reduced, income when the turbines start turning.
But in what is perhaps a sign that the trust’s management is not particularly optimistic about the chances of being able to raise the requisite £200 million in equity or loans, especially given the glum economic climate and ongoing banking crisis, the option of the trust and/or council putting in substantially more than the projected £50 million up front for construction is also understood to be under consideration.