A POWERFUL spending watchdog has launched a scathing attack on Highland Council for wasting £11.5million of public money on a failed community heating scheme.
The Account’s Commission’s final report on the Caithness Heat and Power debacle has branded it an example to other local authorities of how not to run an arm’s length organisation.
It said the green energy scheme led to a “serious” loss of public money and added there were “significant deficiencies” in the way it was managed.
The council created Caithness Heat and Power (Chap) in 2004 to provide wood-fired hot water to homes in Wick – with plans to sell surplus electricity to the National Grid.
But the local authority was forced to take over the “arm’s-length” scheme after four years amid mounting losses and technical problems, which included unreliable specialist electricity generating equipment.
Between 2004-08 only three reports were made to the council about the deteriorating situation, and they all referred to the project team “urgently seeking funds”.
The local authority then sought a private contractor to run the sustainable district heating system, and eventually English firm Ignis took over the district heating system in May 2012.
It now provides heating for 160 homes in Wick.
The fiasco would have cost the council £15.4million but for a number of factors.
These included the fact that 164 householders opted to enter into a contract with Ignis, lowering the cost of reinstating the previous heating systems by £1.1million, and that the council sold some of the equipment to the new operator.
Other reductions included the council not having to pay £2.9million of energy grants and the recovery of VAT.
The Accounts Commission’s report says: “We accept the controller of audit’s conclusion that the final cost to the council is £11.5million.
“This is a substantial and serious loss of public money caused by significant deficiencies in the governance of the project and, patently, it does not represent value for money for the council’s taxpayers.”
The criticism from the commission follows two reports which uncovered “fundamental failings” in the way the project was structured and managed and “serious weaknesses” in governance and accountability.
Accounts Commission chairman, Douglas Sinclair, said: “Arm’s-length external organisations can be an option for delivering council services but only if the necessary safeguards are built in from the start.
“Chap was an example of how not to do this. Serious deficiencies in the governance of the project have led to significant loss of public money.
“Highland Council has learned an expensive lesson but there are lessons for all councils to learn from this project.”
Council leader Drew Hendry said: “The whole saga is a learning point on the way not to do things. I’m confident that Highland Council will not be in the position to support such reckless actions in the future.”
He added that he was “strongly critical” of the handling of the project as an opposition councillor and praised the council’s new chief executive, Steve Barron, for getting to grips with it when he was appointed housing director in 2008.
New guidance for arm’s-length organisations has been put in place.
Wick councillor Gail Ross said: “Chap was an isolated incident. Arm’s-length organisations are now monitored very closely. I hope that nothing like this would happen again and that lessons would be learned from it.”
She said the district heating scheme now in place was a success and it was hoped that more homes would soon be linked.
A Highland Council spokesman said: “The council fully recognises and deeply regrets the failings of Caithness Heat and Power during the early years of its operation.
“Since taking control of the enterprise in 2008, the council has worked tirelessly to minimise the losses and to learn lessons to ensure that the failings are not repeated in any future venture of this nature. Through these efforts, the council has been able to protect the interests of local residents and see carbon emissions reduce.”
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