Memorandum submitted by Neil Arlidge
1. EXECUTIVE
SUMMARY
1.1 The drive of British Waterways (BW)
to self-sufficiency has led them to choose to become a property
company, overly dependent on income from their portfolio and joint
ventures to run the waterways. Their core functions have become
subordinate to property development. An apparent lack of due diligence
has led to a general over-estimation of income from property deals.
This has been a major factor in their withdraw from the Cotswold
Canals restoration project.
2. BW: LOSING
SUPPORT
2.1 Most supporters of the waterways agree
that BW has been badly treated by DEFRA: BW's income has been
cut as a result of deficiencies elsewhere in DEFRA. The waterways
community offered strong support to BW in an attempt to prevent
its grant being cut; the amount of effort put in by the community
is an indication of its commitment to the waterways.
2.2 However, several of BW's recent actions,
notably its withdrawal from the Cotswold Canals Partnership, have
lost it much of that support. Many in the waterways community
now feel that there are fundamental weaknesses in BW systems and
operations and that these can be traced back to confusion about
the nature and purpose of the organisation.
2.3 BW says that: "Our ambition is
that by 2012 we will have created an expanded, vibrant, largely
self sufficient waterway network used by twice as many people
as in 2002."
BW says that its statutory duties include "navigation,
stewardship and trustee of the historic waterway system, an environmental
body with duties to safeguard the natural environment and landscape
character of the waterways and a recreational body with duties
to encourage public access to and recreational use of our waterways."
2.4 Expanding the waterways network means
restoration of canals like those of the Cotswolds. But to BW,
this appears to be seen as a secondary matter, and one to be avoided
if possible. Avoidance is achieved by consistently overestimating
the costs.
2.5 Regeneration is the social benefit that
follows from a restoration, but BW seems to confuse regeneration
with the generation of income for itself. Its desire for self-sufficiency,
based on income from property development, has led it to neglect
core competences, to neglect other potential sources of income
and to alienate its potential supporters and partners.
2.6 Furthermore, as a property developer,
BW is not notably successful.
3. GETTING RESTORATION
WRONG
3.1 In estimating costs of elements of restoration
projects, BW produces figures that are up to twice those quoted
by other parties.
3.2 For example, on the Stroudwater Canal
(part of the Cotswold Canals), Gloucester County Council estimated
the cost of restoration of Pike Bridge as £353,000, whereas
BW estimated £830,000. The actual cost was £360,000
(all figures 2005 prices), only 2% over budget.
3.3 The estimated cost of Cotswolds 1a jumped
from £24 million to £37 million as BW grossly over-inflated
the figures by playing up the risk factor.
3.4 The cause of the problem may lie in
BW's restrictive procurement policy and in lack of due diligence
in managing projects. But the effect is to make restorations seem
more expensive than they need be, and thus to make it less likely
that such restorations will be undertaken. And fewer restorations
means less regeneration.
4. NEGLECT OF
CORE COMPETENCES
IN WATERWAYS
MANAGEMENT
4.1 BW only carries a £3 million contingency
fund. With the number of structures at risk and in the dangerous
E and F categories, I would expect this to be higher, at least
5% of the annual turnover (£190 million).
4.2 Many ambiguities have been found in
the 2007 asset condition list, which does not bode well for the
accurate and up to date analysis of structures.
4.3 Repair work, which had finally started
on the collapsed bull-nose of Vale Royal small lock on the River
Weaver, was stopped: the funding was switched to the Gilwern breach
on the Brecon and Abergavenny Canal. This is a waste of funds,
as the cost of the Vale Royal Lock repairs will now escalate.
5. NEGLECT OF
POTENTIAL INCOME
SOURCES
5.1 BW's flat cash settlement from DEFRA
was better than other agencies received. But BW relied on tireless
campaigning from Save Our Waterways, the IWA and many individuals
in the waterways community, making no public attempt of their
own to ensure their grant was not cut.
5.2 There has been no apparent attempt by
BW to get money from the Treasury Contingency Fund, the Welsh
Assembly, local authorities, the European Union or any other body
for the Gilwern breach, and no information on BW's attempts to
find alternative sources of funding.
5.3 BW did a lot of good work fighting the
floods last summer, but did not publicise it. Publicity could
have assisted them in getting money from the Treasury Contingency
Fund.
6. ALIENATION
OF POTENTIAL
PARTNERS AND
SUPPORTERS
6.1 Recently BW closed the Standedge Tunnel
visitor centre, so the Heritage Lottery Fund (HLF) demanded that
BW return funding to the HLF. Under duress BW reopened the visitor
centre. (It was hardly surprising then that the Cotswold Canals
Partnership failed to get Lottery funding for Cotswolds 1b from
Saul to Stonehouse.) Now the Cotswold withdrawal is making potential
partners reluctant to involve BW in any restoration or regeneration
partnership.
6.2 BW have lost support amongst user groups
and individual customers too, because of their mooring tendering
trials and licence fee increases. There is considerable scepticism
about the value of consultation exercises. Many waterways supporters
believe that the outcome (eg the amount of a fee increase) was
decided in advance and that the process was designed to get customers
to accept the pre-ordained figure. Internal reviews are greeted
with similar scepticism. BW's latest "leaked" "memo
to staff" shows they have completely lost the plot, in that
respect.
7. LACK OF
SUCCESS AS
A PROPERTY
DEVELOPER
7.1 For British Waterways to fulfil its
role, it needs to be able to budget accurately. But it appears
to have difficulty in matching the likely income streams from
property with its expenditure streams. Furthermore, it relies
on assumptions about economic conditions and growth in the property
market.
7.2 In some cases it assumes that it will
get planning permission easily, so its own plans and forecasts
(as mentioned in Board minutes) are based on continuous "straight
line" growth projections. But at Gloucester Quays, BW's joint
venture with Peel Holdings was not allowed the predicted housing
density.
7.3 There were similar problems with the
ISIS joint venture at Commerce Road, Brentford (ISIS was set up
by British Waterways (50%), AMEC and IGLOO regeneration fund in
2002). The plans for the site had evident flaws, which the London
Borough of Hounslow (amongst others) pointed out to ISIS over
five years. ISIS refused to compromise and the case dragged on
for years, eventually going to public planning inquiry.
Hazel Blears (DCLG) agreed with her inspector
that the development had "fundamental deficiencies"
in relation to design and conservation, access and transport and
affordable housing issues. She also agreed "that the development
would have an overwhelming impact on the adjoining conservation
areas and would prejudice the viability of better located town
centre sites." Hounslow was particularly pleased to see the
inspector calling for "a completely different conceptual
framework that would succeed in respecting the capacity of the
site."
The result will be a less dense site, with lower
income potential, developed in a flat or falling property market.
But, in a clear mismatch between income and expenditure streams,
income from this project was intended to fund the 2008-9 BW budget;
its loss led BW CEO Robin Evans to say at a recent press conference
that lower income from joint ventures will create a £5-£10
million deficit in the 2008-9 budget.
7.4 Even on the Cotswolds, BW made mistakes.
As part of the funding package for Cotswolds 1a, BW accepted from
SWRDA a property valued at £6 million instead of cash: Some
land was needed for the canal and the rest was to be sold to fund
the restoration. The Board minutes of January 2006 and March 2006
suggest that this decision may have been taken with indecent haste
and without due diligence. Was the property worth £6 million?
Was it suitable for resale? Was this a convenient vehicle for
SWRDA, so it did not have to use its compulsory purchase powers?
(No CPO's we used to assemble the land for Cotswolds 1a).
8. CONCLUSION
8.1 BW does need more predictable funding.
But the present focus on property development seems to deter BW
from engagement in restoration and has caused it to under perform
in waterways management and advocacy. BW consistently overestimates
the risks and costs of restoration and underestimates those of
property development. It relies on matching development income
with its own expenditure, ignoring other potential income sources,
and without recognising that the two streams are inherently incompatible.
To compound the problem, it has made serious errors in property
development, thus risking further deterioration in its waterways
management and advocacy. Ne sutor ultra crepidam: BW should concentrate
on its core functions, the government should fund it properly
and property development should be left to the developers.
Neil Arlidge
March 2008
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