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Trust must raise £72 million for Viking

SHETLAND Charitable Trust on Wednesday defended its decision to go into private session to discuss the drawdown of £750,000 towards the controversial 540 megawatt Viking Energy wind farm project.

The charity, which holds more than £200 million of Shetland oil monies, owns 90 per cent of Viking Energy Limited, one of the two partners in the development.

On Thursday, trustees are being asked to sanction the final instalment of the charitable trust’s £3 million contribution towards developing the project to planning consent stage.

Anti-Viking Energy campaign group Sustainable Shetland said that it did not make sense to hold the item in private since the overall financial commitment had already been made by trustees a long time ago in public.

The trust’s financial controller Jeff Goddard said that his report to trustees contained a number of commercial details that were relevant to both partners of the joint venture and therefore had to be taken in private.

He added that in addition a more comprehensive update on the Viking Energy project had been prepared and will be discussed in public at the same meeting.

In his six page report Mr Goddard sets out his first thinking of the financial implications to the trust should the £800 million project go ahead.

He said the charitable trust would need to “de-risk” some of its “volatile” share market investments in order to provide security for a limited amount of lending the trust could be required to do.

Mr Goddard reassures trustees that “the project can be financed”, that renewable energy projects are regarded as “good borrowers” and that banks are keen to lend to such projects.

He said he had met with a number of banks, including representatives from the European Investment Bank (EIB), who all indicated that up to 80 per cent of the overall cost could be raised by what is called ‘project finance”, which would need no guarantee from any of the partners.

With 80 per cent covered through project finance, Mr Goddard said that this would leave the partners to finance the remaining £160 million. Of that half would have to come from SSE and £8 million from the four minority shareholders, leaving the trust the task of finding £72 million.

This could be done by selling some of the shares in the company with a profit, which would mean reducing the pressure to raise a very large sum of money but also giving up part of the potential profits.

Mr Goddard appears to favour three other options, including raising £72 million from the trust’s own reserves, borrowing the full amount or borrowing half of it.

He wrote: “At this stage the last option looks potentially the most attractive with the trust borrowing £36 million secured perhaps on the project’s income stream alone and providing £36 million as an investment out of its own reserves.”

Should the trust decide to put in some of its own money the annual income from investing its assets of around £220 million would go down and therefore the impact on the trust’s ability to continue spending around £11 million a year.

Mr Goddard wrote: “I have modelled various possibilities, and the numbers show a manageable situation if I assume steady, average returns from the stock market.

“That assumption is not valid and I believe that trustees will need to reduce exposure to volatile shares in some way.

“Perhaps a straightforward switch to government bonds, but there are more sophisticated ways to de-risk.”

In his report, Mr Goddard also reveal that Viking Energy Partnership has so far spent £2.8 million on developing the project, half of which came from Viking Energy Limited (VEL).

VEL itself has so far spent £1.1 million since 2003 on so-called “internal costs” such as salaries for the four Shetland based staff, office rent, travel cost and IT support.

Mr Goddard said: “I am not expecting any further request for funding for the evaluation stage, unless the consent application is referred to a public inquiry, provided a determination is made before 31 March 2011.”

Viking Energy Partnership will submit an addendum to its original planning application later this summer which is expected to show less than the originally proposed 150 turbines.

 

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