Officials considered Cairngorm mountain resort closure as repairs bill soars

The Cairngorm funicular has been closed since September 2018 due to structural problems.

But it is emerged that having already pumped more than £10m in works to fix it, ministers and officials were considering scrapping the project altogether. A dossier of internal Scottish Government documents seen by the Herald show that business minister Ivan McKee ended up sanctioning continuing with the project as the "least worst option" while warning additional finance could not be guaranteed.

Urgent repairs which are expected to rise by a third from £16m to £21m are feared to be going even higher while concerns have been expressed from within the Scottish Government's Highland and Islands Enterprise agency about how it will be paid for.

The faults were discovered after the costs of building the funicular spiralled from £14.8m to £26.75m.

Internal Scottish government documents have revealed that HIE officials are concerned about the affect the economic pressures of the issues will have in carrying out its work in developing the economy of the Highlands and Islands.

HIE has so far declined to give any updates on the costs of reinstating the funicular - and financial details relating to the project have been heavily redacted, even though they have implications for the public purse.

Highlands and Islands MSP Edward Mountain, the former convenor of the Scottish Parliament's rural economy and connectivity committee says a public inquiry is needed into the affair.

“My suspicions about the true extent of the challenges facing the Funicular Railway were raised when Cairngorm Mountain was notably absent from the Scottish Government’s latest budget," he said.

“Now we know why. While the repair costs continue to rocket upwards, the Scottish Government has yet to identify further funding.

“Even worse, it appears that the Scottish Government expect HIE to cover the additional costs of the repairs despite the agency’s overall budget seeing a reduction this year.

“This begs the question, where will HIE find the money to finish the repair job?

“We now need transparency from the Scottish Government. The minister must inform the Scottish Parliament about the true extent of the costs and delays to the repair works.

“I continue to campaign for a full public inquiry into the running of Cairngorm Mountain over the last two decades, it is clear that mistakes have been made in the past which both HIE and the Scottish Government must learn from.”

The Cairngorms are a major Scottish tourism attraction and centre for recreation with downhill hillwalking and rock climbing a major draw for the 1.92m who visit the national park every year from around the world.

Repairs have been ongoing with the world famous 1.3-mile funicular which was opened in 2001 but has been closed since September, 2018.

The Scottish government has already pumped million towards the cost of fixing the railway which connects a base station with a restaurant and a ski area 1,097m (3,599ft) up Cairn Gorm mountain near Aviemore.

An internal briefing to business minister Ivan McKee on January reveals the "costs based on closing the resort" were put at at least £20m. A breakdown of the costs included £16.92m for the removal of the funicular, while some £2.9m in EU grant funding would have to be paid back. There were further heavily redacted sums calculated for the removal of other infrastructure, redundancy and other related costs as well as ongoing subsidies.

But the minister was told that the Highlands economic development agency had been contemplating the best operating model for the resort going forward, including considering private sector ownership.

He was told a model in which the public sector retains ownership of the assets, like the funicular, was adopted by other public sector bodies.

According to the analysis the full business case showed that CMSL's operating costs would be £153.7m over 30 years against an income of £77.2m -leaving potential taxpayer costs of £73.09m.

But the briefing states that is set against an estimated £146.22m of economic benefit to the country.

The minister was told that that meant there would be a net value to Scotland of £88.64m.

The following month it emerged there were two remaining options either to complete it or stop the project and remove the funicular and associated infrastructure from the mountain.

The business minister was told a decision was "time critical because costs are continuing to be incurred" and that there was "no option which did not involve a significant capital outlay and an associated impact on the capital budget for 2022-23".

An internal Scottish Government memo states: "Mr McKee noted that the position reached was unsatisfactory, because both options required a decision to take action without the necessary budget cover being identified.

"However, there was a choice to be made between continuing to deliver the project and securing the benefits described and stopping the project which would fail to deliver these benefits and result in an even greater capital pressure... given the significant capital costs of removing the funicular, and the fact that the majority of expenditure for the reinstatement had been committed already.

"In these circumstances Mr McKee agreed reluctantly that continuing with the reinstatement was the least worst option, and that approval should be given for HIE to continue with the project.

"It was noted that this would create a pressure on HIE’s capital budget for 2022-23, and that officials would continue to work with them to find a solution. It was further agreed that the ongoing subsidy requirements for the resort would need to be revisited once the funicular reinstatement was complete.

Four days later, Mr McKee's office said there was an agreement that the reinstatement project should proceed and that additional funds will be found.

But an internal memo states: "This implies that SG [the Scottish Government] will fund, although doesn't explicitly say so."

By the end of February, another internal Scottish Government memo of a meeting with HIE said: "The minister [Mr McKee] hoped HIE had got the sense that the financial situation was not ideal with the cost to remove, versus the cost to reinstate the funicular and that he was clear that additional finance could not be guaranteed in the future."

An additional budget of £10.16m of taxpayers money was provided to HIE as part of the capital spending review towards total funicular project costs set at £20.51m last November.

It has been revealed that the remaining funding came from HIE, from its sale of the Centre for Health Sciences (£8.5m) and existing HIE budgets.

The full business case for the reinstatement was approved by the HIE board and then rural economy and tourism secretary Fergus Ewing in 2020.

According to an HIE briefing to the business minister in December, 2021 the approval "recognised that the mountain is a significant natural asset and that reinstatement of the funicular would contribute to maximising its economic potential."

The business case for the replacement of the funicular included a commitment from Scottish Government that funding would be provided to support the operations of resort operator Cairngorm Mountain (Scotland) Ltd (CMSL) if HIE were unable to meet that from their own budgets.

The full business case included an estimated ongoing subsidy requirement of up to £2.54m a year.

However ministers were told that the HIE have indicated that there is uncertainty over the total cost of supporting CMSL as this is dependent on the winter season and the impact Covid may have.

A Scottish Government briefing as early as November to ministers, including Mr McKee, says there is an "unfunded pressure" in the current budget process for 2022-23.

"The overall complexity of the project means that there continue to be technical queries and associated challenges relating to the interface with the existing structure and design challenges," the memo says.

"Officials are working with HIE to determine whether any existing budgets can be repurposed, and whether the agency can bring forward capital spend from 22-23 into the current financial year to enable budget from its allocation next year to be reprioritised to the funicular.

"However, HIE has made clear that it could not absorb all of the cost pressure within its existing capital budget. At flat cash rate, the pressures identified for 22-23 would consume a significant proportion of HIE’s capital allocation."

A separate memo warns: "If HIE were required to meet the additional cost of completing the reinstatement project it would have a disproportionate impact on its budget and significantly impact on its ability to support businesses and communities across the H&Is [Highlands and Islands].

"The Business Case clarified that the benefits associated with operating the resort are such that ongoing operating support is justifiable. However, delivery of the masterplan is expected to result in a more sustainable outcome for the resort, but that will require further public sector investment."

A separate memo from late last year setting out HIE's position during the negotiations stated: “HIE does not have any capacity to meet the additional funding requirements to complete the reinstatement works. If it were to be asked to so it would have a disproportionate impact on HIE’s ability to support businesses and communities across the region. Indeed, the opportunity cost would be substantial.”

Internal documents reveal that HIE has had a dilemma in when to replace a control system associated with the funicular - which is expected to add extra costs.

Works were originally planned for the Autumn of this year, and would take 12 weeks to complete.

But the continuing delay to the reinstatement works has impacted on the timing of the replacement.

A key issue with the reinstatement was that as part of a cost-cutting measure as the scheme was being progressed, HIE agreed with the contractors at the time that proposed steel beams for the track would be replaced with concrete.

According to the Cairngorm National Park Authority strengthening works to the railway viaduct will involve reinforcing props and concrete bases beside 63 out of 94 piers.

HIE has been proceeding with a claim for more than £14.5m damages plus interest and expenses against the now owners of Morrison Construction, Galliford Try Infrastructure Limited and Inverness-based AF Cruden Associates Limited, the civil and structural engineers for the scheme who have now been taken over by Glasgow-based Arch Henderson.

HIE which auditors say "faces significant financial pressures" have included a provision of £14.3m for the cost of reinstating the funicular which was expected to take two years.

The agency has been making claims over defects in the design and construction of the railway and breaches of contracts which emerged after the funicular shut in October, 2018.

A spokesman for Highlands and Islands Enterprise (HIE) said: “The mountain resort at Cairngorm is a key environmental asset and visitor attraction for Scotland that underpins the vital tourism sector around Aviemore.

“The funicular reinstatement programme is a hugely complex engineering project that has been affected by multiple challenges, including Covid, extreme weather and technical issues.

“As a result, the target date to have the service up and running again had to be moved back to winter 2022/23, and it is clear that the costs cannot be contained within the original budget.

“Following winter shutdown, the construction team are now back on the mountain and making good progress.

“We are determined to maximise the benefits that Cairngorm Mountain can deliver to the local economy and the community, and the Scottish Government has been entirely supportive.

“Working with the government, we are confident that the funicular reinstatement programme can be concluded successfully without impacting on HIE’s ability to fulfil its remit in other parts of the Highlands and Islands.”

Regarding the control system, HIE added: “We still expect to be ready to install the new funicular control system immediately after the construction works are concluded, in autumn 2022 - enabling the service to be resumed as planned in winter 2022/23.”

And over Mr Mountain’s call for a public enquiry, HIE added: “The funicular and HIE’s management of Cairngorm have already been subject to two thorough reviews carried out by Audit Scotland and another by the Scottish Government itself.”