BW Status Options Review
British Waterways: Status options review by KPMG published today, 10 September 2008.
In June 2007 British Waterways asked financial consultants KPMG for expert advice on how best to get more long-term financial security for the waterways via a Status Options Review. The review provides external clarification of the financial challenges facing BW and evaluates options for addressing them.
The business analysis undertaken by KPMG as part of their Review:
- Endorses the steady state model as "a reasonable starting position from which to consider BW's future funding requirements" (page 7);
- Observes that "BW has made significant steps to reduce the costs of maintaining the waterways and continues to look at ways of reducing the cost of delivery";
- Observes that BW "has adopted and implemented a strategy to develop commercial revenues to the limits of what is readily achievable under the current model" and that it "has done well to date from its property portfolio".
The Report nevertheless confirms the very significant funding challenges facing BW:
- "We estimate there is a funding gap [in England & Wales] of at least £29m per annum between the cost of maintaining the waterways and the funds available to BW" (page 7);
- In the longer term through additional regulatory costs, mandatory further reservoir work and differential construction cost inflation, that funding gap will increase;
- As a general proposition, a 'spend to save' strategy commonly applied to infrastructure such as roads, railways, water services etc does not provide the same opportunity to BW because it cannot replace its heritage assets;
- Current projected growth in commercial and non-commercial earned revenues under the existing business model, though considerable, will not close the funding gap. The projections used pre-date the present slowdown in the property markets.
The Report considers options for alternative institutional models that may provide scope for British Waterways to leverage its property portfolio, with a view to increasing revenues.
- On page 38 of the Report KPMG outline a possible alternative institutional model, designed to give BW the opportunity to increase commercial freedoms whilst retaining the waterways assets in long-term public ownership;
- However, KPMG conclude that "In our view there is no overriding short-term economic case for adopting the possible alternative model we have outlined. There is, however, a potential longer term opportunity to create value through increased property investment, potentially focussed on regeneration, which BW will not be able to fully exploit in its current framework" (page 44).
- In parallel, KPMG's analysis demonstrates that "Maintaining the status quo is quite risky in the medium term and may not be a stable long term solution to BW's relationship with central government" (page 43).
Readers attention is drawn to the disclaimer on page 1 of KPMG's Report, which applies to all readers/or recipients of the Report. KPMG have consented to the publication of the Report on the BW website and for its downloading and reading for public information purposes. There has however been no general release of the copyright in the Report, though limited quotation for normal journalistic purposes, non-commercial research etc is permitted.
Download a full copy of the review.
The press release accompanying the publication of KPMG's Report containing the British Waterways Board's response can be found here.
A full copy of the Terms of Reference for the review is included as an appendix to the Report and can be found on pages 49 to 51.
The link below will take you to a copy of the brief to consultants invited to bid for the review work: BW Strategic Operations Review May 2007 (248KB PDF). Please click the following link for details of the appointment of BW's preferred advisors press release.
