This post takes a further look at the longer costs and benefits of the funicular railway at Cairn Gorm as set out in Highland and Island Enterprise’s Full Business Case (FBC) (see here) .
What I failed to mention in my first post on the FBC back in October (see here) was the total estimated costs of repairing and running the funicular and associated operations over the next 30 years – assuming the repairs work (see here) – £174.21m. Averaged out over 30 years that comes to costs of £5,806,666 a year.
I thought it worth comparing that to the income earned at Cairngorm since the funicular was built. The table shows the turnover of Cairngorm Mountain Scotland Ltd and its predecessors since 2001, with the third column showing that turnover adjusted to 2019 prices using the Bank of England’s Retail Price Index Inflation calculator:
Accounting period Turnover Inflation adjusted Key events/Notes
| 30/04/2001 | £ 1,773,733 | £3,008,058 | |
| 30/04/2002 | £ 1,639,015 | £2,731,212 | 23rd December 2001 funicular opens |
| 30/04/2003 | £ 2,636,431 | £4,321,228 | |
| 30/04/2004 | £ 3,099,161 | £4,936,904 | |
| 30/04/2005 | £ 2,976,470 | £4,604,334 | |
| 30/04/2006 | £ 3,295,431 | £4,957,724 | |
| 30/04/2007 | £ 2,818,138 | £4,108,387 | |
| 30/04/2008 | £ 3,595,933 | £5,026,805 | HIE takes over CML |
| 30/03/2009 | £ 3,223,461 | £4,333,320 | |
| 30/03/2010 | £ 4,802,292 | £6,490,215 | |
| 30/03/2011 | £ 5,175,500 | £6,686,072 | |
| 30/03/2012 | £ 3,139,334 | £3,854,972 | |
| 30/03/2013 | £ 4,388,402 | £5,221,080 | |
| 30/03/2014 | £ 4,448,816 | £5,136,856 | |
| 30/03/2015 | £ 4,331,828 | £4,886,387 | CML sold to Natural Assets Investment Ltd |
| 31/12/2015 | £ 2,050,393 | £2,290,208 | 9 month financial year |
| 31/12/2016 | £ 4,749,982 | £5,215,047 | |
| 31/12/2017 | £ 3,547,475 | £3,760,013 | |
| No accounts | Funicular ceases operate, HIE buys back CML | ||
| 31/03/2020 | £ 1,165,836 | £1,165,836 | Accounts cover 16 months |
NB Bank of England Inflation calculator is by calendar year and, where the accounts use a different period, the Inflation Adjusted column is only an approximate illustration of current prices.
The table shows that in only two years, 2010 and 2011, did Cairngorm Mountain earn enough money to pay for itself according to HIE’s current cost projections. Both those years, as Alan Brattey showed in his Analysis of Funicular Passenger Numbers, attracted exceptional numbers of skiers and snow boarders.
Even if one excludes both capital and management costs from this analysis and instead uses the projected £141.35m operating costs that HIE believe are needed to keep CML going over the next thirty years, those average £4,711,000 a year. In only 9 out of the last 18 published accounts has Cairngorm Mountain earned, on an inflation adjusted basis, even that amount.
Now consider the £4.35m additional capital investment that has been agreed as part of the Funicular Business Case:
Typical of HIE’s lack of transparency, all estimates of costs have redacted apart from the total at the bottom, so it is impossible to how much it proposes to invest on what. But none of the other income earners that have been proposed for Cairngorm, whether zip slides, tube slides or dry ski slopes are included on the list. With snow lie in the Cairngorms projected to decrease (see here) and significantly less ski infrastructure on the hill than when the funicular was first built, the Full Business Case makes the Cairngorm Mountain business more dependent on the funicular than ever before.
It is not even clear from the FBC whether the £4.35m additional capital costs will allow for full refurbishment of the Ptarmigan. This was claimed, just four years ago (see here), to be crucial to reversing the drop in summer visitor numbers (as demonstrated by Alan Brattey’s analysis).
What is extraordinary about the FBC is the about turn: it makes no attempt to pretend that the funicular can ever, Ptarmigan or not, attract significantly increased numbers of visitors:
If anything, the table underestimates likely visitor numbers. In the five years until operations were suspended in 2018, the funicular carried an average of 191,248 compared to a projected 162,789 visitors per annum. Again, HIE have not explained how they have worked out their projections, but the 30,000 skier numbers presents a significant drop on past figures (as contained in Alan Brattey’s analysis). The table confirms that HIE effectively see no future snowsports at Cairn Gorm and suugests that the recent investment in the snow factory (the cost of moving the snow factory to a better location is not included in the capital costs) and new beginners area is at best a distraction.
The low projected visitor numbers may be also an attempt by HIE to protect itself from future embarrassment and enable it to claim success if higher numbers of visitors than officially anticipated turn up.
Taking the projected costs and income together, the result is a net £73.09m operating loss for Cairngorm Mountain over the next thirty years:
Although the HIE Board when approving the FBC in July (minutes here) recommended that “a clear and readable draft of the business case should be prepared for publication”, what appeared was couched in jargon, repetitive and abstruse. It is no wonder people have failed to recognise the financial implications of Option 3a which the HIE Board and the Scottish Government have approved.
I am not against “public subsidy” for services that contribute to the common good. The way the FBC justifies the large operating loss is by claiming it is offset by Gross Added Value, all the indirect benefits that might flow from the repair of the funicular and its ongoing subsidy to the economy. The FBC does not explain how the claimed figure of £161.73 GVA is derived but does state it includes national benefits (like attracting skiers to Scotland as stated in the SE Group report in 2018?).
We know that ALL investment, public or private, has positive knock on effects for the economy. This is why Keynes stated it was better for government to pay people to dig holes in the ground than do nothing in a recession. It is possible therefore that HIE may have worked out the GVA figure of £161.73m, which offsets the net loss of £73.09m of operating the funicular, to produce a net alleged benefit of £88.64m, by using standard economic multipliers rather than any specific analysis of the likely impact. That interpretation is reinforced by several statements in the FBC that the investment will contribute to the recovery from Covid-19. So would paying people to dig holes in the ground, that does not make the proposal sensible.
There is NO attempt in the FBC to assess whether this large amount of money might not have greater impacts if invested in others things, whether at Cairngorm (e.g ski lifts), Speyside or the HIE area more widely. That is a complete abdication of responsibility by both HIE and the Minister responsible, Fergus Ewing, when government spending continues to be constrained.
Why would HIE commit itself to this long-term drain on its resources?
In their report on HIE’s management of Cairngorm Mountain and the funicular published in June (see here), Audit Scotland endorsed HIE’s decision to outsource CML in 2014 to the outfit known as “Natural Retreats” stating:
“The appraisal confirmed that a private operator was the preferred option. Over a 25-year period, it was expected to achieve the lowest cost and highest income for HIE, and it was the only option projected to deliver a positive financial return.”
The whole disastrous outsourcing exercise to Natural Retreats was effectively justified by Audit Scotland on the grounds that HIE had a public duty to secure a positive financial return. Just a month later, at their Board Meeting in July, HIE abandoned that approach completely, showing it was hogwash, and agreed to commit to an ongoing financial loss.
Having had their budget slashed from £71.7 to £58.2m by the Scottish Government over the last two years (see here), one might think it strange that HIE would make such a long-term agreement. You would be right, they are not. It is the Scottish Government that has agreed to foot most of the £73.09m bill.
“All costs are subject to full additional funding from Scottish Government. This also assumes, as previously confirmed by the Scottish Government, that £8.5m proceeds from the sale of a HIE asset will be made available to support Cairngorm activity in additional to normal business as usual capital spend of £300k per annum.”
The £8.5m refers to the proceeds of the sale of the highly profitable Centre for Health Science in Inverness. As an aside, the disposal of profitable assets and investment instead in unviable enterprises like the funicular is unfortunately helping to give public run enterprises a bad name.
The decision also appears to be contrary to European rules on state aid which the Scottish Government has stated it is committed to observing elsewhere (e.g the collapse of Bifab (see here)). The section of HIE’s Business Case that deals with state aid fails to explain how they can justify treating Cairngorm Mountain differently:
In state aid terms, the issue is how can the Scottish Government justify favouring its own operation at Cairn Gorm over other ski centres and tourist attractions? In the case of snowsports, while Cairn Gorm has received huge sums of money for very little benefit, the other ski centres have been fobbed off with the odd grant here and there.
In political terms, besides appearing a crude attempt to buy votes by the local MSP and Minister responsible, Fergus Ewing, (its crude because the money could be spent in much better ways on Speyside), he has committed the Scottish Government to making long-term budgetary commitments that would be unthinkable elsewhere. I cannot think of any other business or enterprise in Scotland that has been given such long-term guarantees of funding by government. Indeed, most organisations in receipt of public funding are forced to budget from one year to the next and live from hand to mouth. But not Cairngorm Mountain Scotland Ltd.
What needs to happen?
The Scottish Parliament’s Audit and Public Scrutiny Committee, considered Audit Scotland’s report on HIE’s management of the funicular shortly before (see here) HIE published the FBC for its repair. The timing doesn’t appear a coincidence, HIE appears to have deliberately delayed publication of the report, approved back in July, until after the hearing. The case, however, is still open to the Audit Committee. I hope they will now call on both HIE and Fergus Ewing to explain both the financial basis of their decision but also the reasons why the funicular failed and whether the £16.16m they intend to spend on repairing it is likely to work.
To provide independent verification of the facts, the Scottish Parliament could call on engineers from Balfour Beatty, the main contractors, and the other design engineers to explain whether they believe the repairs will work and why they appears to have failed to offer any guarantees for the work they are undertaking.
Beyond this, with Audit Scotland apparently incapable of offering the independent scrutiny that is required, it appears that only a full Public Inquiry, in which officials and politicians are required to give evidence under oath, will ever get to the bottom of why Cairngorm Mountain has been subject to such disastrous management and for so long.
The last time that an independent inquiry examined plans for Cairn Gorm was in 1981. The Lurchers Gully Public Inquiry concluded with a recommendation that proposals by the Highlands and Island Development Board for the westward expansion of downhill skiing facilities into the adjacent northern corries should be rejected. The Secretary of State for Scotland, George Younger MP, agreed with that recommendation and refused planning permission. Today, 40 years later, we are in desperate need of another independent public inquiry to examine the fairy tales once again being promoted by HIE, successors to the HIDB, and the potential consequences for successive governments, public finances and public enjoyment of downhill ski facilities in Scotland over the next 30 years. This essential scrutiny can only be achieved through a judge led public inquiry in which all witnesses give evidence under oath. That is why we need every person who aspires to become a Member of the Scottish Parliament in 2021 to be fully committed to the establishment of such an inquiry during the next parliamentary term. Otherwise a financial and environmental disaster awaits the northern Cairngorms, on both the ski slopes and the eroding river below.
An excellent analysis of HIE’s highly flawed business case which lacked evidence to support the contrived recommendation to repair the funicular.
Another conclusion is that the masterplan for the future of Cairngorm Mountain is dead, and was effectively a conn to inject a delay whilst HIE worked with (we can probably guess) in the Scottish Government to develop the ‘business case’. HIE needs to be challenged on this. Having got their way, HIE probably think that everyone has forgotten about the masterplan. Yet another waste of money by HIE.
In January 2018 HIE commissioned the SE Group from North America to produce the ‘Cairngorm Ski Area Feasibility Assessment and Strategic Plan. Their report was published in November of that year. That report predicted an annual skier day figure of 130,000 by year 3 of the Strategic plan. The Full Business Case, published just one year later, has a predicted annual skier day number of 30,000. A difference of 100,000 skier days……who is kidding who here?
HIE spent >80k of public money on the SE Group report which they are already ignoring. The so-called Masterplan will have swallowed another 40k of scare public funds but everyone who has followed this disgraceful saga is very well aware that it will be published with a public fanfare but it will not be worth the paper it is printed on. It was compromised from before the consultants began their work by the terms of reference which assumed that the Funicular would be repaired. Bulldozing the area outside the Daylodge to create a beginners area also compromised the Masterplan as did putting in Tube slides and planning to move the Snowfactory further up Coire Cas. If the Masterplan was worth anything at all then nothing would have been done until after it had been published and agreed by all stakeholder groups
A public enquiry must happen and if it does not then the Scottish Government are complicit in this shambles and we’d be left to wonder what they are hiding.
Table 5.10 Visitors and income per option. The Ellmau Funicular was removed in 2015 and replaced with a 10person Gondola DOUBLING the hourly capacity, immediately destroying HIE’s figures in this table for options 2a & 2b. But even without the increased capacity of a gondola, why should there be fewer number of non-skier visitors? Because it suits HIE to present the gondola as a less economically viable alternative is the answer to that. The total CMSL 30year income should therefore be higher for options 2a &b. There should have been an option 2c, a chair/ gondola hybrid which is (1) cheaper to build than the Funicular repairs are going to cost, has (2) lower maintenance costs than a funicular, (3) lower all round operating costs, as the chairs can be removed during the summer months, (4) lower environmental impact than the funicular as it is now and even more so after the “propping up” exercise, and (5) most importantly, it is what the snowsports enthusiasts want, bringing more of them back to Cairn Gorm and increasing revenues. The amount of money, time and effort wasted by HIE on the Cairngorm ski resort with nothing to show in increased income is scandalous and shows why they are not fit to be owner/operators of such an important national asset! The Scottish Government should be investigating all of this before allowing any more public money to be wasted on repairs or reports.
we’ve had expert analysis of the various individual elements of this: financial, social, technical, etc. however, the minister- and his government- have to take a strategic overview, balancing all the factors, which non of the commentators do. so, in effect, what we need to focus on is the decision making process. for that to happen, we dont need a long, expensive, and ultimately futile public inquiry. instead, a judicial review of the process would be easier to attain, quicker, and more focussed. unless we are saying that the process was fine, we just dont like the conclusion.
Thank you for providing some clarity on the money pit that is Highland and Island Enterprise. Of course it is one thing to subsidise for the common good, but quite another to subsidise an organisation which consistently mismanages their activities and which attempts to hide information behind redacted documents. Any other organisation that took a business case like this to the bank would be laughed off the premises. I agree with Barrie that a Judicial Review might be preferable to an Inquiry.
Barrie & Nicholas. Unless the minister responsible is a civil engineer with a knowledge of bridge design he wouldn’t have a clue about most of the COWI report. It has taken me some time to understand by googling things to find out what is going on and having even more explained to me by two civil engineers and someone else with a knowledge of the rail and funicular industry including the building of the Cairn Gorm train . And I am still discovering new aspects. Even HIE in their F.B.C. are saying that a public subsidy of circa £174M will be needed over the next 30 years, admiiting that the Funicular is uneconomical and as Nicholas so aptly points out, if you took this business plan to a bank they would still be laughing now. One of those after dinner jokes! Because the decision was made to finance this was made at the beginning of October2020, the time limit for a judicial review ran out at the beginning of January 2021.There are more posts to come as soon as we get the replies to the FOI requests currently lodged with HIE which will reveal some quite startling information. Watch this space!!!
As much as I would like to see independent scrutiny of the facts I am struggling to see where the pressure will come from for a Public Inquiry. The public bodies HIE, the Scottish government, Fergus Ewing and Audit Scotland definitely wouldn’t welcome one. Balfour Beatty are on to a good thing and wouldn’t want to put a spanner in the works. The other Scottish Ski Areas are frightened they might loose the scraps they currently receive from Fergus. They would also be concerned with anything that might end the mismanagement of Cairngorm and reestablish its former, pre Funicular, market share. In the 1980’s Cairngorm’s skier days accounted for 60% of the Scottish total. This had fallen to 30% in the years just before the Funicular closed in I2018. So the poor Scottish Skier will have to continue to watch as huge sums of public money are ploughed into creating a facility with reduced appeal. The alternative is to ski at one of the other Ski Areas where, despite their hard work and best efforts, under investment has resulted in run down, out of date facilities. Just imagine the facilities they could be enjoying now if the money that has been poured into the hole that is Cairngorm, had been evenly distributed
Complete and utter shambles
Why are HIE continually trying to reinvent a square wheel
Take a look at Poma Dopplemeyer or any of the professionals in the European Alps or in the US .. simple easy solution
Funiculars are primarily designed to be on the ground not on leaning unstable pillars with massive concrete beams trying to topple the structure over with forces of gravity!
Scrap it and start again before any more environmental/mental headaches occur
Rebuild with 10 seater cable cars similar to what they’ve done in other European centres