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The real cost of the Edinburgh tram project

on Thu, 04/25/2013 - 09:40


The real cost of the Edinburgh Tram project will not be reckoned in the cash totals bandied about but the opportunity cost embedded in those totals.

Opportunity cost is the total of everything else that will not be done solely because of the money that has already been spent dping something else.

So in respect of the tram project this current storyin the press is revealing, not really for the headline or the quotes, but for certain facts (also copied below this piece in case the link may break at some point).

Leaving aside the whole of the original £545M budget which was blown on actually acheiving nothing a while ago now, the real opportunity cost for the city lies in the rushed deal to thow another £231 Million at the project in order to get something...anything...'finished'.

To find this money the Council 'prudentially' borrowed (showing that touching faith in the power of words to alter reality that has been a constant hallmark of the project throughout) a total of £231Million more in a 'PayDay style' loan that came with payback costs that would add at least £18 Million to the City's costs every year for around 3 decades.

This translates to an opportunity cost to edinburgh of £1.5 Million every month.

However, as the story shows things just got a whole lot worse...although, as usual, one is hard pressed to spot it, buried beneath more tuneless toots on the 'Success trumpet'.

This is because until last year they were still projecting that the system would make£2.5 Million a year £4.5 Million or so in operational -----  well they wanted to be able to say 'profits' but on this occasion the Acciountants and Audit spoilsports pointed out that even a £4.5M figures deducted from the Loan repayments would leave a £13.5M gap...that to everyone outside the Funny Farm world of City Chambers and Waverely Court, is a LOSS.

 But stymied only temporararily (and aware of the power the words to alter reality) they decided on calling this £4.5Million either an 'operating surplus' or even an 'operating contribution'; anything other than the 'L' word.

But in this story link (Facts pasted below in case the link breaks or is broken)  we now hear that as much as £3.2 Million a year will now be set aside to cover operational losses and 'start up costs'.  On past form, in a year or so, they will quietly drop the caveat ' -- for the first few years including start up costs' and the resulting annual operational loss will become just another brick in the wall of debt  built in order that the council officers and officials involved, and many of the politicians both past and present, just never had to say 'sorry!' and admit they were wrong all along.

Adding this, quietly slipped i,n £3.2 Million loss to the £18 Million (probably more, but as you see the actual facts of financing are ever slippery where the CEC is concerned) means the total ANNUAL loss will be well over £21.2 Million every year.

That is leaving behind the already staggering £1.5 Million a MONTH level and closing on £2Million A MONTH losses every month for the next 360 months.

  • To really see what this means though, the rest of us, at least those lucky enough to live another 360 months just have to watch the news and read the papers and note every time something desirable that should be done, does not get done by the council, because 'unfortunately the money just isn not there.'
  • Then, at the end of each year make a list of all the things that did NOT happen and see how many fall below an aggregate of £18 Million a year--Sorry! £21.2 Million a year- it's not easy keeping track...and you will be looking at the real opportunity cost to the city of this unnecessary and catastrophically manged vanity project.
  • Year after year after year.
  • The pollution, noise, disruption 'costs' are another story-but no less 'real' than the opportunity costs, or the real cash costs.

  • Facts extract from story
  • As much as £3.2 million a year will be set aside from the city council budget to cover start-up costs and operational losses.
  • An annual dividend from Lothian Buses, which could amount to £16m over five years, will be given to tram chiefs.
  • Passengers were to have been 9 Million a year-now to be 5 Million (just over)




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