The bulk of Shetland Charitable Trust’s funds will be safeguarded if it invests in Viking Energy’s proposed windfarm, with the exception of between £30 million and £60 million it will have to stump up to ensure the project goes ahead.
That is according to new provisional figures released this week which prompted trust and Viking chairman Bill Manson to insist he does not believe community funds will be put at an “unacceptable risk” by what undoubtedly remains a massive investment.
Many of the isles’ politicians are eager to see the green light for a 127-turbine development which could deliver a £23 million a year windfall for the trust to use on funding care homes, leisure centres and the arts. It may also allow for spending in new areas – with talk behind the scenes, for instance, about providing insulation for every home in the isles.
The updated model for financing the project estimates that borrowing from the European Investment Bank and other commercial lenders would amount to £548 million of the total £685 million price tag. The loans would be taken out by the Viking Energy Partnership – a joint venture between Scottish and Southern Energy (SSE) and Viking Energy Limited.
In a briefing note issued to all 23 trustees and available on its website, charitable trust financial controller Jeff Goddard explained that should the Viking partnership for any reason default on the loans it would not leave the trust’s entire oil reserves at risk, as has been feared by some.
Mr Goddard said the risk to the trust was substantially reduced because the banks are willing to lend on a “non-recourse” basis – meaning the charitable trust will not have to provide any security or guarantee on at least 80 per cent of its share of the borrowings. This is because banks now view onshore windfarms involving companies such as SSE as a “safe” investment.
Over and above the £548 million, SSE will have to raise £68.5 million, while the four minority shareholders – the directors of the Burradale windfarm – will have to come up with nearly £7 million. That leaves the charitable trust to find £62 million, down from £72 million based on the earlier, 150-turbine proposal.
Mr Goddard said one option would be selling £31 million-worth of its £180 million of stock market shares over a five-year period, while borrowing the same amount from banks.
The balance between selling shares and borrowing could change, but a 50-50 model is what he expects to recommend to trustees come decision time, likely to be in around one year if Viking gets planning consent from Scottish ministers.
Along with the European Investment Bank – which may provide over £300 million – major commercial banks including Lloyds, RBS, BNP Paribas and Barclays have been sounded out and have expressed interest in how the project will be financed.
Should everything go pear-shaped, for instance if there were engineering problems installing the huge turbines on Shetland’s windy hills and the project had to be abandoned, the banks would be left significantly out of pocket. They would effectively have only the turbines and any other infrastructure as collateral.
In such a doomsday scenario the trust would stand to lose up to £62 million in loans and investments, though Mr Manson said he hoped half of that could also be borrowed on a “non-recourse” basis, which would limit the maximum losses to £31 million.
Stressing that the figures were only projections, Mr Manson said he believed the risk to the trust would be minimal: “I think the financing of this project is being and will be approached on a conservative basis. I am very confident that the trustees of Shetland Charitable Trust will not allow its funds to be put at unacceptable risk.”
Opponents question how the trust will sustain its £11 million a year spending if it has to drawn down its reserves during the five-year construction phase beginning in 2013.
Addressing that point, Mr Goddard’s report says some turbines will begin generating electricity and income after three years and he estimates the maximum amount taken off its balance sheet at any one time will be £22 million.
Mr Manson pointed out that the trust lost over £100 million in a three-year period on the stock exchange between 2002 and 2005 and was still able to maintain its spending.
There is little doubt that the past history of council investments gone wrong – most notably in SSG Seafoods and Smyril Line – has eroded public confidence in the ability of elected members to take successful financial gambles with the community’s oil funds. Twenty-one of the 23 trustees also sit as councillors.
But Mr Manson pointed to the involvement of SSE and the willingness of banks to lend money as strong factors which should reassure people that the reserves will not be jeopardised.
“The private sector will not spend this sort of money on experimental projects where they don’t expect to see a return for it,” he said. “The banks are now coming to the stage where they’re confident enough about onshore wind. It’s proven technology and as long as the machinery we pick falls into that category as well then the banking industry has the confidence to put its money up.”
The option of offering members of the public the chance to buy small portions of the trust’s stake has been mooted previously and Mr Manson said it was something which may be looked at again.
But he favours putting in place an upper limit to prevent wealthy people buying up shares in large numbers and instead would like to encourage community groups, for example, to have fund-raisers to allow them to buy a stake in the development.
Acknowledging that restricting the availability of shares to people within Shetland could run into legal problems, Mr Manson said parties from south bidding for a piece of the action “wouldn’t be very popular” and that would have to be guarded against.
“Selling shares to the public will no doubt be discussed again, but more likely once we have [planning] consent. We have no policy to do so, but if we were to decide to consider it seriously we’d need a fairly thorough investigation of what we were actually able to do.”