Agenda item

The Board considered a report of the Chief Executive which gave Members advise on the current budget position relating to the Mersey Gateway Project. 

The Board was advised that the Project budget was split into two distinct areas: the development cost budget for delivering the Mersey Gateway through the Procurement phase of the project up to Financial Close when a contract would be in place with the private sector (the Project Company) to design, build, finance and operate the project.

 The information updated the forecasts made in the development budget approved by the Executive Board on 25th September 2008 and the information on budget monitoring reported to the MG Executive Board since then.  A revised forecast for this period was also outlined in Table 2 in the report; and

The report also provided a summary of the expenditure incurred in relation to land acquisition to the end of quarter one 2011-12 together with the current estimate for the expenditure to be incurred under various activities.

The Board was further advised that the funding agreement with the Department for Transport (DfT) established when Mersey Gateway received Programme Entry approval in March 2006, specified that the Council was responsible for meeting all development costs up to receiving Final Funding approval for the project. The funding agreement with Ministers was being administered by the rules for delivering local major transport schemes.  

Furthermore, it was reported that originally, the Council contributions were expected to be Capital in nature.  However, there was an ongoing debate in terms of what the Audit Commission was content to accept as Capital expenditure.  As a result, a proportion of the development budget could not be treated as Capital and must be accounted for as Revenue expenditure instead.  This could partially affect the way the Council was able to utilise prudential borrowing as a funding mechanism.  Discussions were ongoing in this matter and the assessments undertaken so far indicated that revenue was unlikely to exceed 20 per cent of the total development budget with the remainder being treated as capital expenditure.

It was also reported that the Project Team had experienced  significant cost pressures since 2010:

·              The Project Team expected the Mersey Gateway to receive the necessary planning and funding approvals early in 2010 after a successful Public Inquiry.  Unfortunately, the economic crisis and subsequent Spending Review meant that the project programme suffered from a lengthy delay;

·              The situation had been exacerbated even further due to Government requests for information on various aspects of the project.  The Project Team were obliged to undertake a significant amount of further research, studies, etc in order to satisfy these queries.  This included revisions and further testing of the traffic model, revisions to the business case and a value engineering exercise.  The tasks associated with these requests were not part of the original budget forecast and required the continued mobilisation of a large project team; and

·              The Secretary of State has requested that the project costs were reduced which included moving to open road tolling operation from the outset. Other changes were proposed that would overall reduce cost by at least £30m. To deliver these changes alterations to the original approved planning applications were required.   This additional work was not part of the original budget forecast.   

It was also reported that the planning decisions made by the Secretaries of State on 20th December 2010 had now triggered the next stage in the land assembly process. The progress made in assembling the land required for the project is reported separately on the agenda but the Council had commenced the exercise of the relevant compulsory purchase powers enabled by the Compulsory Purchase Orders and the made Order under the Transport and Work Act 1992. These powers allowed the Council to acquire the remaining land which was necessary for the Project.

In respect of the Land Acquisition Budget, was set out in a table in the report, provided a summary of the expenditure incurred to the end of quarter one 2011-12 together with the current estimate for the expenditure to be incurred under the various activities as described above on an annual basis.

RESOLVED: That

(1)                     the revised budget for Development Costs up to Financial Close when a public private partnership is in place be approved;

(2)                     the requested land acquisition capital expenditure budget be approved;

(3)                     it be recommended that the Council amend the Capital Programme accordingly; and

(4)                     the potential impact on the Council’s revenue budget to cover the costs that are not capitalised be noted.