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COVID-19 Final Business Case Refresh

Download the full Trams to Newhaven COVID-19 Full Business Case Refresh report (PDF)

Why have you undertaken a review of the Final Business Case? 

As you would expect for a project of this scale, a comprehensive and robust process was followed in the development of the Final Business Case that was approved by Council in March 2019. In light of the COVID 19 pandemic and the impact this has had on public transport patronage,  it was right that we re-examined the economic and financial case to ensure the project delivers the expected economic benefit and remains self-financing given that the financial model for building the Trams to Newhaven is largely based on paying back monies borrowed through tram patronage. 
 

Are you cancelling the project?

The review of the Final Business Case (FBC) using scenarios developed by the Council’s economic advisers, shows that the Trams to Newhaven Project is self-financing  and delivers a positive economic impact so the report is recommending the project continues. 
 

Why aren’t you cancelling the project? 

The review of the Final Business Case, using scenarios developed by the Council’s economic advisers, shows that the Trams to Newhaven remains self-financing and delivers a positive economic impact. The project continues to support wider policy and strategy goals at a national (National Transport Strategy 2) and city (City Vision 2050, City Plan 2030, City Mobility Plan) level. The total cost of cancellation is calculated at £107.4m compared with £207.3 to build the line and that this £107.4m would be incurred with none of the benefits set out in the FBC being realised.  In addition, £32m of the £107.4m would need to be found in the 2020/21 financial year due to accounting rules which would impact on other Council capital projects. The project continues to work towards a Spring 2023 completion date and is forecast to be delivered within the agreed £207.3m budget. 
 

What is the financial impact for the Council in the long term? 

The financial impact on the Council is outlined in the report at section 4.22 and is dependent on the scenarios that have been developed by the our economic consultants based on data on public transport patronage from around the world. In all scenarios the Trams to Newhaven Project remains self-financing albeit there are scenarios where it may take longer to pay back the borrowed monies that originally outlined in the Final Business Case agreed by Council in March 2019. 
 

Why did you use these particular four scenarios?

The scenarios that were analysed were as a result of advice from the Council’s economic advisers, an infrastructure specialist consultancy, that used data from around the world to predict what the most likely scenarios would be for Edinburgh. 
 

Which of the scenarios is most likely?

Due to the uncertainty surrounding future recovery it is not possible to single out a most likely scenario. The Council’s economic advisers’ view is that they will not be in a position to advise on likely recovery scenarios until more data becomes available. The Council’s economic advisers are collating data from a number of cities around the world but at present the information they have is sufficiently robust to draw any definite conclusions. This is why we asked them to look at a number of scenarios. 
 

Why don’t you stop construction now and wait to see what happens with COVID 19 and public transport patronage? 

Stopping construction and waiting to see what happens isn’t the answer. The project would need to maintain the constructions sites and continue to pay the contractors which would add significant cost increases to the project. Construction is continuing and good progress is being made despite the impact of COVID 19. 
 

The report details changes to Council’s financial rules – is this being done only for the Trams to Newhaven Project? 

No, this relates to all Council capital projects and is not only for the Trams to Newhaven Project. A review has been undertaken on the suitability of the Council’s current accounting policy for interest in light of the advent of large-scale projects, spanning more than one year of construction, and funded from future revenue streams.  The Council currently accounts for interest costs in the year in which they arise, unlike the private sector, where the opportunity to capitalise interest costs is adopted more widely. The Council is considering changing its policy to allow for the capitalisation of interest during the construction phase which would reduce the project’s impact on revenue budgets, saving £12m (£20m when compared to FBC interest rates) during the construction period at a time when the Council has numerous budgetary challenges associated with COVID- 19. 
 

In some of the scenarios there is a call on Council reserves – why is this? 

The key component of the financial model for the Trams to Newhaven project is borrowing against future patronage over a thirty-year period. As a result of projected income and projected spend in certain years, there are some scenarios that require using Council reserves for cash flow purposes. In all scenarios the project is self-financing although there are certain scenarios where it would take longer to pay back the borrowed monies. 
 

How is the project progressing? 

The project continues to work towards Spring 2023 for completion and carrying passengers, and can be delivered within the £207.3m budget agreed by Council in March 2019. There are challenges on key parts of the route given the volume and complexity of the utilities that need to be moved in order to accommodate the tram infrastructure. An updated programme showing completion dates for each section is available here.