Auditors are to investigate how Shetland Islands Council came to agree to foot a £1.9 million compensation bill if the Viking Energy windfarm fails to go ahead.
The irrevocable letter of credit is to cover the cost of work done by National Grid in preparing for installing an interconnector electricity cable to the Scottish mainland and connecting to the grid.
The size of the compensation payment came to light less than three months ago when councillor Allison Duncan queried figures relating to a “contingent liability” in the council’s annual accounts.
Assurances were given that the council would only have to pay half of the £1.9 million on behalf of Viking Energy Limited, which is owned by Shetland Charitable Trust. The other half would fall to VEL’s partner Scottish and Southern Energy.
However, the council’s financial exposure to National Grid would rise substantially as the amount of work involved in preparing for a cable link and grid connection increases.
Today councillor Gary Robinson persuaded the council’s audit and standards committee to order an internal audit of the agreement, which many elected members had little or no previous knowledge of.
He said he had been unable to find an audit trail to show where and when it was agreed that the level of liability could increase from around £250,000. He asked: “Where did the budgeting authority come from to run up that £1.9 million?”
The guarantee originates from the early days of the Viking project when it was owned by the council. SSE had its own windfarm plan at that time.
The arrangement was sanctioned by the council in October 2004, according to research by The Shetland Times.
In 2007 the windfarm was “sold” to Shetland Charitable Trust because at that time it was illegal for a local authority to make a profit from the sale of electricity. At that time councillors were told that negotiations would take place regarding the offloading of the guarantee as well. But for reasons as yet unexplained it remains with the council to this day.
Two months ago the anti-Viking campaign group Sustainable Shetland called on the council to explain publicly why it was still bankrolling the windfarm project four years after selling it to the trust.