Highlands and Islands Enterprise (HIE) acted 'appropriately' when appointing Cairngorm Mountain operator which later went bust
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Highlands and Islands Enterprise (HIE) has been cleared of any wrong-doing in their choice of a private operator for Cairngorm Mountain by Scotland's public money watchdog.
Wilmslow-based Natural Retreats UK Ltd was appointed in June 2014 on a 25-year lease and made big boasts about their future plans for the ski resort but their operation Cairngorm Mountain Ltd went bust leaving a trail of debt.
The company went into administration in November 2018 – one month after the funicular was closed on safety grounds – and had to be acquired by public agency HIE for £462,000 to safeguard 56 jobs at the resort, and the wider local economy.
CML reported operating losses in each year, eventually totalling £2.9m by the time it went into administration.
The long awaited findings contained in the 32 page report by Audit Scotland have been published today.
The probe has concluded that HIE acted appropriately when selecting a private company to manage the resort but tough decisions on its future are now required.
Elsewhere in the report, its states HIE also recognised the company's inexperience in the snowsports industry as a potential issue but took assurances that existing technical expertise from the previous operator would be transferred.
However, Audit Scotland did have some criticisms.
It said HIE could have done better when it came to giving its reasons for the appointment in the fall-out that ensued when the operator started failing in turning around the resort.
The report states: "There is an opportunity for HIE to learn from this and consider the best way to provide transparency and openness into how future decisions are made in light of the choices available."
It also criticised the public agency for taking its eye off the ball by not monitoring NAIL's finances on an on-going basis which would have put it in a better place to take action.
This was despite identifying the risk before the deal as there was significant debt within NAIL and its subsidiaries and ultimately one-money man.
HIE chief executive Charlotte Wright said: “We welcome these findings which provide a valuable insight into an extremely challenging set of circumstances for Cairngorm and for HIE.
"Their conclusions support the view that HIE acted correctly and professionally throughout this period."
Caroline Gardner, the Auditor General for Scotland, said HIE and the Scottish Government now face tough decisions on how to secure a sustainable operation at Cairngorm Mountain.
She said: "The Covid-19 pandemic increases the uncertainty around the costs and business model required for the mountain in the longer-term. Any future spending decisions need to be informed by the wide range of groups with an interest in the mountain.
"And it's important they should take into account the resort's social and environmental impact alongside its economic benefits."
The Audit Scotland findings also state HIE's appraisal confirmed that a private operator was the preferred option and that "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 lease agreement outlined each party’s responsibilities and obligations for repairs and maintenance but the probe found that HIE and CML did not always interpret this in the same way.
The report states: "Specifically, there were contrasting views on CML’s repair responsibilities in relation to the funicular railway infrastructure. Similarly, NAIL and HIE have differing views on the adequacy of the information HIE provided to prospective operators during the tender process on the condition of the funicular railway."
There is an on-going legal action involving HIE and NAIL and the financial guarantees.
The £20m funicular has been out of operation since September 2018 on health and safety grounds because of issues with the integrity of the concrete pillars and bearings on the two kilometre viaduct which carries the two kilometre track.
It was this development together with HIE's refusal for a bail-out request for £1.8m because of its on-going concerns which proved to be the final straw and CML entering administration.
The report states: "With the funicular railway closed for an indefinite period and planning permission for a new artificial ski slope rejected, CML’s ability to meet its projected turnover and cover its running costs was greatly reduced.
"In October 2018, CML requested a working capital loan of £1.8 million from HIE to ensure that winter sports activities would continue while the funicular railway was closed. It warned that without this support, it was unlikely to be able to continue operations.
At this point, HIE staff undertook a review of NAIL’s accounts.
These showed an operating loss of £3.2 million in the year ending 31 December 2017 and net liabilities of £34.2 million.
CML’s accounts for the same period showed a £0.8 million operating loss and net liabilities of £2.1 million.
At its 30 October 2018 board meeting, HIE rejected the operator's request because it concluded that CML could not afford to repay the loan and NAIL was not offering any security if CML defaulted.
The full report can be found on Audit Scotland's home page at https://www.audit-scotland.gov.uk/ .
