The Cairngorm funicular. Photo: David Briody CC-BY-2.0

The Cairngorm funicular. Photo: David Briody CC-BY-ND-2.0

Millions of pounds of public money were pumped into the controversial Cairn Gorm funicular railway without due regard to the financial risks the project presented.

The development agency at the heart of the scheme was determined to push ahead with the £14.8m project, despite the business case being weak. Conservationists opposed the building of the railway from the outset.

The Scottish Parliament’s public audit committee has seriously criticised Highlands and Islands Enterprise for lax practices which saw the eventual cost of the project spiral to £26.75m.

The committee’s report, published today, said there was a failure to scrutinise the financial health of CairnGorm Mountain Ltd, which operates the railway. HIE did not take account of the potential drop in customers at the ski resort and the effect of climate change on snow levels.

CML was taken into public ownership in 2008 when it faced going into administration. HIE at that time signed a confidentiality agreement with HBOS bank on the payment it received under the settlement, though the bank subsequently allowed disclosure of the deal.

Committee convener Hugh Henry MSP said: “We find it unacceptable that HIE did not review its business case before construction began to ensure that the project was proceeding on a realistic basis and the risks to public funds were minimised.”

“The committee was initially frustrated that its ability to hold HIE to account for the use of public money was compromised by the confidentiality agreement between HIE and CML’s banker.

“We are pleased that the bank agreed to allow this figure to be publicly scrutinised and, in our report, we recommend that the Scottish Government looks at ways in which the transparency of the use of public funds can be promoted.”

But the continuing need to support the project is a worry. European funding must be repaid if the railway stops operating before and agreed 25-year period.

Mr Henry said: “The committee remains concerned about HIE’s apparently open-ended financial commitment to the funicular.

“The potential for HIE to conclude its operational responsibility for the funicular hinges on its ability to transform the business and we therefore urge HIE to ensure that its future business plan for the facility is founded on accurate performance information and that rigorous financial-control measures are adopted.”

The report is damning on the decision to press ahead with the funicular. It said: “The committee considers that HIE’s failure to take account of the risk associated with trends in visitor numbers at the point of commitment to the project is indicative of the determination locally to proceed with the project and the political interest in the local economy which existed at the time. The combination of these factors meant that the project was pushed forward without proper regard to the risk to the public purse.”

Under the settlement, Highland Council received just £1 for the £1m it was owed and the Cairngorm Mountain Trust also received £1 for its remaining shares in the company, after investing £101,000.

Responding to the committee’s report, HIE’s acting chief executive Sandy Brady said: “Highlands and Islands Enterprise recognises the committee’s criticism of earlier decisions surrounding the development of the funicular railway.

“While the agency adhered to Scottish Executive guidelines at the time, we accept that good practice in project appraisal and management has improved significantly since the early 1990s.

“As observed by Audit Scotland’s report, the design and build of a funicular railway at high altitude in an environmentally sensitive area was a unique and complex project which had never been attempted before in Scotland.

“The committee’s report also notes that in moving to protect public investment in the facility by acquiring the operating company last year, HIE was able to negotiate a significant reduction in the company’s debt burden to the bank.”

Mr Brady said the recent heavy snowfall had boosted visitor numbers. He added: “Cairngorm has to date this season attracted 84,000 skiers and is on course for the most successful year since the funicular opened. The most recent calculation by VisitScotland shows the most common spend per head for skiing visitors to be £100 a day.

“HIE is committed to its responsibility to maintain the safe infrastructure of the facility and to put in place a financially sustainable business model which enables the resort to continue increasing its contribution to the local, regional and national economy.”

In May last year, Ramblers Scotland called for a halt on any further public money for the project. Director Dave Morris said: “An absolutely huge sum of public money has been spent on this, but when it started its life it was supposed to have been private-sector led. We always held it was built in the wrong place.

“The top station should have been at the lower end of the Ptarmigan Bowl, away from the European designated sites, then they might not have had to have a closed system which prevents people getting out at the top. It might have succeeded then.”

Pressure has been mounting recently to allow summer users of the funicular to exit at the top of the track. Current rules, set up to protect internationally important environmental sites on Cairn Gorm, allow only winter passengers out of the train.

Cairn Gorm has some of the best winter climbing routes, and is a popular summer destination for both climbers and walkers.