1.  The decision of British Waterways to withdraw from the Cotswolds Canal project has caused considerable consternation within the local community. Over the last few years the delivery of the project has raised expectations which it is difficult to see being delivered without the involvement of British Waterways.

  2.  Having submitted an FOI request to British Waterways it is abundantly clear that British Waterways have not been committed to the project for at least a year, as a result of its property development partner not wishing to pursue an interest in Brimscombe Port. A summary of board minutes and reports is set out in appendix 1. One of the Board reports in suggesting an exit strategy states that "much of the blame will be put down to the cut in grant" (BWB 3274 March 2007). This is a wholly unacceptable way for a public sector corporation to behave.

  3.  The real reasons for the failure of this project are the dependence of British Waterways to profit from land they have acquired alongside the Canal corridor. As the March report from the Chief Executive made clear "This very considerable variance from our previous costings is due almost entirely to the unravelling of the property transaction assumptions . . . . In essence we need to realise £1 million per acre for our developable land and this would only be achieved if we got planning permission for relatively dense housing . . . . The reality is that we will not be able to achieve the sort of value we had assumed in earlier appraisals.

  4.  From the board report in November 2006 it is clear that part of the "fit with Corporate Policy" notes that "ISIS has been involved in Brimscombe almost from the outset and is currently undertaking a capacity study on our existing holding and the adjacent Brimscombe Mills site (where there is also developer interest). Isis are expected to confirm their interest in November." Information on ISIS Waterside Regeneration can be found at http://www.isis.gb.com/index.html Presumably the property "unravelling" reported to the March 2007 board was as a direct result of the work undertaken by ISIS at Brimscombe Port.

  5.  The Board report for the January 2008 meeting makes clear that the final straw is the failure of Stroud District Council to indemnify British Waterways for the repayment of the Heritage Lottery Fund grant for the whole project (the whole £12 million) in the event that SDC did not complete Brimscombe Port. It is wholly appropriate for SDC or any other partner to be liable for the risk of the part of the project they are undertaking, however, it is completely unreasonable for either HLF or BW to expect a minor partner to take on the risk for the whole project.

  6.  One of the benefits of British Waterways being involved in this project is that they have a track record in maintaining the national canal network and have a track record in delivering major canal restoration projects. However, it is clear that British Waterways reliance on property speculation to fund both the restoration costs and part of the running costs of the canal has damaged the viability and credibility of the project. It remains to be seen whether it is possible for the project to recover from this considerable set back.

Cllr Chas Townley, Stroud Town Council

March 2008

JANUARY 08 BOARD MINUTES

08/12 Finance Report

  On the Cotswolds Canal 1A project, the Board noted that Stroud District Council would not indemnify BW for non-performance in constructing the Brimscombe Port section. In the light of this, together with the funding position generally and the need to fund the Monmouthshire & Brecon Canal breach in particular, the board agreed to withdraw from the project. A full explanation of the reasons for this would be prepared for funding partners and other stakeholders.

JANUARY 08 - EXTRACT FROM CHIEF EXECUTIVE'S REPORT

"The Board will recall that we had agreed with Stroud District Council (SDC) that they would construct Brimscombe Port section of the canal, thereby removing between £2.5-5 million of risk from BW."

"In trying to document this agreement, it has become clear that SDC will not indemnify BW for non performance. This means that if SDC do not build out Brimscombe Port to Heritage Lottery Fund satisfaction, we are liable to HLF clawing back the whole £14 million grant from us"

"HLF have confirmed that they would be highly unlikely to do this if we had constructed our part of the canal, but they will not reqlinquish their right to do so."

"I do not believe we would be required to pay back the grant by HLF if SDC failed to build Brimscombe although it remains a risk. What is more likely is that we will come under great pressure from HLF and others to step in and undertake or complete Brimscombe Port."

NOVEMBER 2007 MINUTES

Cotswolds

  07/136—The Chief Executive reported that issues had arisen with Stroud District Council and HLF which were further delaying agreement on the commencement of the Cotswolds 1A project. Every effort would be made to achieve an early resolution of these.

NOVEMBER 2007 CHIEF EXECUTIVE BRIEFING

6.1  Cotswolds

  Despite making it onto the first short, short list of nine projects (out of an original 300), the Cotswolds 1B project was not selected by the Big Lottery. The Cotswolds Partnership will now have to consider whether there are any other options to create this link into the Gloucester & Sharpness Canal.

SEPTEMBER BOARD MINUTES

Matters Arising

Cotswolds Canal (Minute 07/90)

  07/104—The Chief Executive advised that following a recent meeting with Stroud District Council, heads of terms for the Council to take on the £3.5 million additional risk had been confirmed in principle. He was hopeful this would shortly be translated into a final agreement.

SEPTEMBER CHIEF EXECUTIVE BRIEFING PAPER

1.   Stakeholder Relations

1.1  Defra Relations

Strategy Day

  We had a very constructive Strategy Day with Defra officials on the 15 August. Sir Neil Cossons facilitated the meeting and we achieved a common understanding of the financial pressures/opportunities facing BW. Defra officials were very proactive in their approach and we definitely further improved our working relationship.

JULY BOARD MINUTES

Cotswolds Canal

  07/90—The Chief Executive referred to the schedule on the funding position for the Cotswolds Canal restoration attached to his report. [Confidential information]. Whilst it had not proved possible to bridge the remaining shortfall now, all the partners had pledged to continue to work to do so.

  The Board agreed that with every possible effort having been made by the Executive, the risks of proceeding with the project were now acceptable, assuming that in principle agreements translated into contracts. The timing of this and announcements were a matter for the Chief Executive. The special nature of the project and that it did not create precedents for other restorations were points to be emphasised.

  For the future, it was accepted that meeting BW's increased commitment would create hard choices in the next Business Planning round. Identifying a precise restoration budget for the next 4 year planning period and adhering to it strictly was a further essential.

JULY CHIEF EXECUTIVE BRIEFING PAPER

2.3  Media Relations

  The Sunday Telegraph featured a news report questioning whether the Cotswold restoration would go ahead or not. It suggested that BW's grant reduction had a direct effect on the organisation's willingness to pursue additional waterway miles. We issued a statement reiterating our commitment to the restoration, but noting that work was underway to reduce the currently unacceptably high level of financial risk associated with the scheme.

4.1  Cotswold Canal

  We are continuing to make strenuous efforts to find a solution to the funding gap previously reported to the Board. The main focus of this work is Stroud Council and the transfer of responsibility to them for the delivery of Brimscombe Port. If we can achieve enough comfort on this and cover the relatively small remaining gap from other funders, we should be able to recommend continuing with the restoration. However, we may not be able to achieve this comfort and therefore may be recommending the Board to withdraw from the project. A verbal update on the position will be given at the Board Meeting.

  Appendix A shows a total income of £28.7 million and a estimate costs of £36.945 million. Potential solutions are shown as £3.14 million Brimscombe Port Shortfall to be delivered by SDC? Iron Mills property costs 0.91 million risk to be underwritten by SDC ? Cost reductions £0.36 million. Remaining gap £0.834 million after BW increased their funding from £3 million to £6 million.

BOARD MINUTES JUNE 2007

  07/76—The Board considered BW 3281.

On the Cotswolds Canal, it was noted that whilst efforts continued urgently to bridge the funding gap reported at the last meeting, the prospects of achieving this were not good. The Chief Executive confirmed that BW had conveyed this reality and its consequences to the other funders. It was likely that a final decision would have to be taken at the next Board Meeting.

  The report reports that "risk workshops were undertaken with the partners in March. As reported to the Board in March these workshops identified a project funding gap of £11 million not least as a result of the property assumptions made in 2005 unravelling. . . . . SDC are closely involved and SWRDA have also been advised. . . . We have suggested to Stroud District Council that they take on responsibility for Brimscombe Port, including the canal, basins, and the crossing of Brimscombe Hill Road.

BOARD MINUTES MARCH 2007

  07/42—The Board considered BWB 3274.

The Chief Executive advised that the full assessment of the project risk that the Executive had now completed showed a project shortfall of £8 million. This was additional to the £3 million BW had already committed if the project went ahead. The variance from previous costings was due to the need to reduce over optimistic assessments of value that could be achieved from land holdings post canal construction.

The Board expressed disappointment at this unacceptably high funding gap that had now arisen. It was agreed, however, that one last effort to bridge the gap should be made. There was a full discussion on options to achieve this which might be available to each of the principal funders. An indication of the risk which might be acceptable to BW was also given. Additionally the Board considered whether changes in the project scope might be achievable.

The Executive undertook to pursue these issues and report further. It was accepted that time was pressing but a short further delay in the decision on whether to proceed was justified in view of the significance of the restoration.

  The board report details the costs and income and sets out the following:-

"This very considerable variance from our previous constings is due almost entirely to the unravelling of the property transaction assumptions. In all previous costings, the net cost of the property has been used and this hid some over optomistic assumptions about the value that could be achieved from our land holdings post canal construction.

In essence we need to realise £1 million per acre from our developable land and this would only be achievable if we got planning permission for relatively dense housing. After full consultation with Stroud District Council, it is clear that Stroud already have sufficient land allocated for housing to meet their planned needs and that our land is in the flood plain which would mean we would have to prove no other suitable land is available. The reality is that we will not be able to achieve the sort of value we had assumed in earlier appriasals.

I have met with David Hagg (Chief Executive of Stroud District Council) and agreed we need to plan for both an exit strategy and an alternative proposal. (The alternative proposal was for SDC to develop Brimscombe Port).

Recommendation was to get everything sorted by end of April and comments "much of the blame will be put down to the cut in grant. The executive will prepare a comprehensive PR plan in these circumstances."

NOVEMBER 2006 BOARD MINUTES

Restoration Report (BWB 3258)

  06/158—The Board considered a project submitted for approval.

Cotswolds Canal Phase 1. To restore to full navigation the canals between Brimscombe Port and Stonehouse and create a trail between Stonehouse and Saul Junction.

In the discussion, the Regeneration Director confirmed to Mr Sutherland that he was confident that the Waterway Trust would raise its commitment of £469,000 over the term of the project.

The Board accepted there were significant risks, but on the basis that these were capped and with the project scoring highly in the core activity of regeneration, it was resolved to proceed as follows:

—  BW's total contribution to be set at £3 million;

—  The Executive to be tasked to reduce the current risks of overspend or achieve additional income to deliver the project within the BW contribution of £3 million;

—  Approval be given to sign the HLF funding contract and cash drawn down to commence;

—  Approval be given for construction to commence with expenditure subject to clawback limited to £3.2 by March 2007;

—  The Executive to be instructed to advise the Board at or before the end of March 2007 that they can deliver the project within the agreed £3 million BW contribution and that they are therefore proceeding to completion;

—  If the Executive cannot reduce the risks, then BW will not proceed, the project will be abandoned, recognising the significant reputational risks and the risk of having to repay £1.6 million of funding.

  The report released under the FOI request lists three property development issues.

"Our Pub Partnership has identified opportunities at Stonehouse and Brimscombe Port, both on Brownfield sites"

"ISIS has been involved in Brimscombe almost from the outset and is currently undertaking a capacity study on our existing holding and the adjacent Brimscombe Mills (where there is already developer interest). Isis are expected to confirm their interest in November."

  In relation to future maintenance costs it comments that Gloucestershire County Council has gifted them land which the District Valuer has valued at £1 million and goes on to suggest that they are able to realise about £45,000 per annum from the site (assumed to be Wallbridge) for a pub.

BOARD MINUTES JULY 2006

  06/131—The Board considered BWB 3252 and approved the following projects:

. . . Updates on the following were also noted: Cotswold Canal Phase 1A and 1B, Droitwich, Liverpool Canal Link, Manchester, Bolton & Bury and Olympics and Bow Back River Restoration.

BOARD MINUTES FEBRUARY 2006

Restoration update (BWB 3210)

  06/13—The Board congratulated the bid team on the successful funding applications to the Heritage Lottery Fund and South West Regional Development Authority (SWRDA) towards the cost of restoring the Cotswold Canal. The Chief Executive advised that after careful review, it had been decided that the SWRDA requirement to pay their funds as capital (ie land) and not revenue could be accommodated. It was noted that HLF's grant conditions included Stroud District Council being a co-signatory.

  The Chairman undertook to consider an approach to the Council.

BOARD MINUTES NOVEMBER 2005

Regeneration projects [BWB 3204]

  Progress on the following projects was noted:

—  Cotswold Canals;

The Executive confirmed that linking the canal to the network was a priority;

BOARD MINUTES SEPTEMBER 2005

Cotswold Canal Restoration (Minute 05/92)

  05/104—The Commercial Director confirmed that the prospects for commercial sponsorship of the canal restoration had been assessed, but were not significant in terms of the total funding gap. (See also Minute 05/108).

Cotswolds Canal

  05/108—The Chief Executive gave an update on the meeting with major stakeholders on 15 September when the project funding gap of £9.2 million had been discussed. Mr Evans advised that the meeting had been constructive, but that the prospect of increased funding was not good. Several stakeholders had, however, suggested they might help underwrite the risks. The possibility of reducing some of the quoted costings for the works had also been raised. His response to this was that he had to work on the basis of the costs as they stood unless there was reliable evidence to do otherwise. If the partners were able to come close to funding the gap, then he would be prepared to ask his Board for a contribution.

  The Board endorsed the Chief Executive's approach and that every effort should continue to bridge the gap. It was agreed that any underwriting of risks would have to be contractually sound. It was recognised that a potentially most difficult decision was only a few weeks away.

BOARD MINUTES JULY 2005

Operational projects (BWB 3194)

  05/92—The Board considered progress reports on two prospective projects:

   . . . ..

Cotswold Canal Restoration

  The Managing Director, South, in introducing the progress report highlighted the likely £1 million shortfall in funding which had now been identified together with additional costs in the order of £5 million. The implications for the project were fundamental since BW would not be able to fund this itself, given other competing priorities. Discussions were in hand with the HLF and SWDRA on funding options. Also every endeavour was being made to secure voluntary and private sector funding, although prospects were not good. The Commercial Director referred to BWs current commercial sponsorship project and undertook to consider whether it could assist with the Cotswold Canal.

  The Board agreed that the downgrading of the prospects for the project would need sensitive communication to all involved, internally and externally. It was accepted that the presentational balance between leading a project campaign and undertaking the objective assessment of its prospects and the risks involved was a difficult one. The restoration process endorsed by the Board at its previous meeting for immediate implementation would be helpful in that respect.

JANUARY 2005 BOARD MINUTES

Restoration of the Cotswold & Droitwich Canal;

  On the Cotswold Canal, the Board endorsed the arrangements to take the restoration up to Stage II at no cost to BW. The Board noted that in the event that it proceeded with the projects, BW would bear any unfunded elements of both the Droitwich and Cotswolds restorations. It was felt the implications of accepting this risk should be considered further in terms of achieving strategic business planning objectives and especially greater self-sufficiency and achieving the vision. Middlehaven was also relevant in this context. There would be a further discussion at the next Board Meeting.

Stroud Town Council

March 2008