The managing director of Lothian Buses has warned councillors that a £20m payment required to pay for the tram extension is “not guaranteed”.
Councillors approved the £207m tram extension to Newhaven in March – which is reliant on a £20m extraordinary dividend from Lothian Buses. The majority of the tram extension will be funded by borrowing, paid back by future tram ticket sales.
The “explosive comments” from Richard Hall came after Labour Cllr Gordon Munro quizzed the bus chief about investment decisions by the company, owned by the council – amid worries it may hamper the ability to pay up the extraordinary dividend.
Cllr Munro said: “In some people’s view, there’s the potential of a threat to the shareholder dividend that’s expected by this organisation in regards to investment in the tram project.
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“The recent investments made by the company, whether it’s the buses, whether it’s the motor coaches, whether it’s the East Lothian and West Lothian investments, one of the expectations that we have as a council is an expectation of an exceptional dividend coming from Lothian Buses that would actually help with the financial gap that we have with the tram project.”
Mr Hall said the investment decisions such as rolling out a fleet of controversial 100-seater diesel buses and rolling out the motor coaches arm of the business were necessary to prepare for the future.
He said: “The payment of dividend for the tram project is not guaranteed. The board has to review that that business trading is significant, that it’s appropriate and that the business is able to continue investing in terms of that it sits in the right place in the market.
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“No board or managing director can ever guarantee it because society changes, trading changes – high street names disappear. We make every reasonable expectation as officers of the company to deliver that.”
He added: “We have to invest in our fleet – it’s critical. We have to invest in our staff – whether that’s in pay or whether that’s in facilities. We have to invest in our property portfolio to make sure it’s fit for purpose.
“We are actually taking those balance sheet hits now to protect the balance sheets for the future. In eight years time we don’t know what will happen to patronage – people may change what they do. We will continue to strive as officers and as a board and an organisation to meet the desires and expectations of the city.”
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Conservative councillors, who opposed the tram extension for a number of reasons including the potential impact on Lothian Buses, have called for officials to supervise the situation.
Tory transport spokesperson, Cllr Nick Cook, said: “These explosive comments from Lothian Buses’ top brass cast huge doubts on the viability of the tram business case so happily approved by the council’s SNP-Labour administration.
“Conservative concerns on the issue were sadly discarded. The project must be monitored closely going forward.”
The council’s director of place, Paul Lawrence, told councillors that the council must play its part to ” make the operating conditions for Lothian Buses the best it can possibly be – most notably addressing issues of congestion.”
A council spokesperson said: “This is in line with the commitment we’ve had from Lothian. We will work with them to help ensure they can realise the dividend in accordance with the final business case.”