SIC’s windfarm inter-connector liability falls to £300,000

The SIC’s liability for an inter-connector to carry power south to the mainland has dropped to £300,000 if the Viking Energy windfarm plan should fall by the wayside, following a re-calculation of insurance costs.

But members of the audit and standards committee learned today that the council had effectively signed a blank cheque to cover the costs of the National Grid’s development work when it penned the deal in 2004, a situation that one councillor branded “a gun to the head” of the council.

The cost of the insurance cover has fluctuated from £300,000 to almost £2 million before settling down again to £300,000 plus VAT for the next period of the “irrevocable letter of credit”, which will last to October this year. There is also no effective ceiling to the amount that the guarantee could cost, as it fluctuates in line with perceived insurance risk and under-writing methods.

The committee mulled the implications of the guarantee following receipt of a letter from Sustainable Shetland chairman Billy Fox criticising the council for taking on a liability that depended on the involvement of a third-party interest, Viking Energy. Shetland Charitable Trust bought the council’s 90 per cent stake in Viking Energy in 2007, thus ending the council’s financial interest in the project.

Mr Fox, who had obtained details of the cost of the guarantee under a freedom of information request, said later he was “very dissatisfied” with the committee. His letter claims that there was an “impropriety here which could make incumbent members liable for inappropriate use of funds”.

Development director Neil Grant told the committee that it had been deemed appropriate for the council to retain the guarantee as the inter-connector as it was in the council’s corporate plan to provide infrastructure for all power generation efforts and was not only for the use of Viking Energy. The council was also a “bigger and safer pair of hands” than the charitable trust. Nonetheless the National Grid retains the right to call in the guarantee if the Viking Energy plan should be shelved.

Councilor Jonathan Wills criticised the “open-ended” deal which appeared to have no upper limit and said that the agreement had never been re-visited by the council since it was first signed. The charitable trust was also big enough to handle this sort of financial exposure on its own.

Councillor Gary Robinson said that the deal was a “gun to our head” and could have meant a significant bill coming down on the council if the project had not been given the go-ahead.

The guarantee was to have been reconsidered by the council’s one-time executive committee, but since council restructuring had put paid to that committee, the issue had disappeared into a “black hole”.

However councillor Robert Henderson said it had been perfectly clear to him that that the cable was for the use of all Shetland power exporters and that the council was rightly under-writing it for the greater good of the community.

Head of legal services Jan Riise said that the guarantee had been before the Audit Commission and it was subject to annual, or more frequent, review. He had signed the agreement himself whenever it was renewed and had sought the opinions of other council solicitors on the issue. He acknowledged that there was no report back mechanism in place for councillors and that the guarantee was a standard letter with only the amounts varying.

There were also many other examples of the council signing “contingent guarantees” which only represented a potential risk, Mr Riise added.