9 May, 2008

THE CURRENT beneficiaries of Shetland’s £250 million “oil money” nest egg are entitled to understand the basis and assumptions on which this nest egg would be invested in the Viking Energy windfarm project

Please answer the following:

Revenues

What are the key assumptions on which the estimated annual revenue of £130 million over the 25 year life of the project are based? Bearing in mind that electricity prices change continually, what prices have been assumed? What contingencies in these assumptions have been made for alternative, cheaper sources of supply and/or windfarm obsolescence? How will fundamental conflicts of interest with Scottish and Southern Electricity be dealt with? They will want a cheap source of supply, whilst Shetland will want to maximise sales prices. Will the minority 10 per cent shareholders hold the balance of power?

Operating costs

Please provide a breakdown of assumptions for the key elements of operating costs, namely, the inter-connection charge, interest, depreciation, repair and maintenance and salary costs.

Production

What assumptions have been made for the underlying production of electricity? The windmills at Burradale each have differing levels of efficiency. What tests have been made with prototype windmills of the size and location as planned? What assumptions are made for levels of efficiency, maintenance, downtime and repair?

Capex

This is currently estimated at £552 million for the windfarm and £250 million for the interconnector. What are the key assumptions underlying these estimates? What about VAT? What contingencies are made for overspend? Do these include de-commissioning charges? Who will finance and own the interconnector? What is the annual depreciation charge? If this is this spread over the 25 year life of the project it would reduce annual profit from £36 million to £14 million and Shetland’s share to under £7 million, less than the current annual return of £9 million.

Financing

Shetland’s share of financing cost is estimated at £249 million, the same as the nest egg. So in one form or another this nest egg will be spent or pledged to meet this financing cost. What contingencies have been made for additional financing in the event of budget overrun? How will this be funded? Will there be joint and several guarantees for the whole of the financing?

Charitable status and tax

Just how strong are the assumptions on charitable status and tax on Shetland’s share?

Overall responsibility

Taking into account the risks and variables inherent in the sort of assumptions required for a project of this nature, what legal and financial advice have SIC/SCT as the trustees of Shetland’s nest egg had that it is proper and prudent for them to bet the farm for a wind farm? What other councils have invested their funds on this scale, and for this level of risk and return?

To avoid any question of lack of transparency can you please reply by open letter in The Shetland News.

Yours faithfully
Richard Rowland
Isle of Vaila