The Scottish Government

« Previous | Contents | Next »

Listen

Review of the Rural Petrol Stations Grant Scheme Final Report

4 EXAMINATION OF FUNDING MECHANISM

Introduction

In this section we consider the existing funding mechanism and its strengths and weaknesses. These findings are drawn from our discussions with scheme administrators and from our surveys of rural petrol stations.

Administrative process

Administration of the RPSGS is currently handled on behalf of the Scottish Executive by Highlands and Islands Enterprise (HIE) within their area of influence and by Scottish Enterprise (SEn) in the remainder of Scotland (with a lead in this area from Dumfries and Galloway Enterprise (SEDG)). Information and applications are then dealt with by Local Enterprise Companies (LECs) for HIE and SEn, although within their area all applications are sent by LECs to HIE for approval.

There is, in general, strong support for this model from the agencies that have provided views for this study, although one LEC (in the HIE area) felt that they struggle to find time to market and administer RPSGS and that more central resource or funding would be welcome. SEDG also said that at least some of the LECs outside of the HIE area also suffer from the same resourcing issue. All feel that it is appropriate that local agencies are able to use local knowledge on the needs of businesses and, where appropriate, to use some discretion in the award of funds.

This view is reinforced by the survey of petrol station businesses. When asked how easy or difficult they found the application process, 72% of respondents stated it to be easy and the remainder finding it neither easy nor difficult (with none stating it to be difficult).

LECs have not been provided with central guidance on how to handle applications and, although a number of LECs are using similar forms, no single application procedure or request for business information is in place. At least some LECs 'fast-track' smaller awards for RPSGS funds. Many RPSGS applications are, apparently, of much smaller scale than many awards given by LECs and it can be a relatively inefficient use of LEC resource to undertake detailed assessment of the financial case for each award. Other LECs, however, request and consider much more detailed financial information from applicant businesses. This raises concerns that deadweight funding could be prevalent in some areas, although this concern is not widely realised (deadweight is discussed in more detail below).

It was interesting to note from the business survey that a significant proportion (8 of 30) of recipients of the grant had not handled the application procedure themselves but that a fuel company or equipment supplier had done so on their behalf. Anecdotal comments from those businesses visited during the survey suggest that the application procedure when handled by others had not been rigorous. All but one of the eight were in the HIE area (three were in the Lochaber LEC area, but the others all in different LEC areas). Four of the eight were for LPG equipment provision, though none of these were those in the Lochaber area.

Overall, there is some concern that the application process is not rigorously checking every application in all areas. Additionally, as different LECs are using different application procedures and applying different checks, there is likely to be inconsistency in provision of awards.

Scheme marketing

During the survey work for this study, telephone interviews were conducted with 38 businesses that had previously received RPSGS funds, and a further 30 rural petrol stations that had not.

Of the non-recipients, 57% were unaware of the existence of the grant scheme before we made contact with them. Of those businesses that were aware of the scheme, only 38% (36% of grant recipients and 43% of aware non-recipients) had first been made aware of the grant through 'official' channels of contact with the LEC or the Scottish Executive's promotional leaflet.

Other businesses had predominantly become aware of the scheme from fuel company representatives, trade or local press publications or from discussions with owners of other rural petrol stations.

Overall, it is apparent that contact from LECs accounted for a greater proportion of first awareness of RPSGS in the HIE area that in the rest of Scotland. This view was reinforced by discussions with SEDG and HIE. It was reported that, in many of the less remote rural areas, marketing of RPSGS is seen as less important to some of the LECs than identification of other ways to help a wider range of local businesses.

From discussions with SEn, HIE and some LECs, we are aware that marketing of the scheme varies widely between regions. When the scheme was first introduced, the marketing leaflet was mailed to all petrol stations in the HIE area by HIE and to all petrol stations in at least some of the other more rural LEC areas. No co-ordinated nationwide marketing has been undertaken since then including, as far as we have been able to discover, at the time when the scheme was amended to incorporate provision for LPG.

In some areas, LECs are in regular contact with all petrol stations and so additional marketing is not required. However, several LECs report that they lack the resources to undertake new marketing initiatives. It is therefore expected that new, co-ordinated, national marketing initiatives would need to be accompanied by additional staff and/or financial resources.

Some LECs are aware that initiatives by Trading Standards officers and the Customs and Excise (the primary purpose of which is the enforcement of fuel sales regulations) are leading to increased rigour on infrastructure requirements and that some of these have led to new applications for RPSGS (it is believed that four recent applications in Caithness and Sutherland have been generated because of these sources).

The above suggests that there may be a significant number of rural petrol stations that are eligible for RPSGS funding but that are unaware of its existence. Applications for the grant and the effectiveness of RPSGS in meeting its objectives will inevitably be reduced as a result. It is possible (though not proven in research for this project) that some businesses could close or need to reduce their activity because of lack of knowledge of the availability of grant to continue the sale of petrol and diesel. Furthermore, the availability of LPG in rural Scotland may be lower than would otherwise be the case if knowledge of the scheme was more widespread.

Effects of RPSGS on LPG supply

Catalyst ⁸ report that there are presently 85 petrol stations selling LPG in Scotland (Figure 5 shows their locations). Of these, 54 are within an estimated 30-minute drive time of the edge of a town of more than 30,000 population, so leaving 31 in rural areas (using the definition applied to RPSGS).

FIGURE 5 LOCATION OF LPG SUPPLIES IN SCOTLAND

Of the 31 rural sites, it is estimated that 20 have received RPSGS funding. Ninety-five percent of the recipients of funds for LPG that responded to our survey said that they were only able to offer this fuel because they received RPSGS funds (see assessment of additionality and deadweight below), so overall it is estimated that 19 of the 31 rural LPG stations in Scotland are in place only because of the availability of RPSGS. These supplies have been enabled at an average cost to the RPSGS of 9,000.

Many of the remaining 12 (outside a 30 minute drive time but not in receipt of RPSGS) are on the strategic road network or close to smaller towns (examples include two sites on the M74, two sites on the A9, two on the A82 and sites in Fort William and Nairn). Hence, in the remote rural areas, almost all LPG supply is in place only due to RPSGS.

These sites have been funded, as far as we are aware, on a first-come, first-served basis with LECs reviewing individual applications from petrol stations but without a remit to produce a holistic network of supply sites. Those sites that have been funded are not, therefore, necessarily in the optimum locations to meet or encourage demand for LPG. Additionally, the funding of works for LPG at one site could preclude another more strategically important location within 15 miles from gaining benefit from RPSGS.

RPSGS is hence concluded to be an effective mechanism to meet the policy of providing LPG supplies in rural areas of Scotland although there is no guarantee that the most appropriate sites are receiving funds. Furthermore, we have concerns that, for some sites, the cost of providing the equipment and continuing supplies may outweigh the current or potential long-term environmental benefit. This is especially the case on some islands where the market for LPG is, and will continue to be constrained. For similar cases in future, it would seem appropriate that a detailed assessment of the net lifetime cost and environmental benefit is undertaken before scheme funding granted.

Given the low proportion of LPG sales at rural petrol stations to date, (a reported average sales of 50,000 litres per annum for LPG, compared to an average of 1.5 million litres total fuel sales at these sites or around 3% overall stated in our survey work), there is limited evidence that significant environmental benefits are arising at present.

We recognise, however, that many of the LPG supply stations have only recently been installed and that there will only have been limited turnover in the vehicle fleet in many of the rural areas affected in the intervening period. There is, therefore, scope for the RPSGS investment in LPG supply to generate significant environmental benefits in future.

Timing of works funded by RPSGS

All grant recipients (both for LPG and petrol/diesel supply works) were asked whether trading would have ceased if the RPSGS funded works (for both LPG and other fuels) had not been undertaken and whether the works were required at the time they were completed. Responses for those completing essential works are given in Table 2.

TABLE 2 TIMING OF WORKS FOR THOSE BUSINESSES FOR WHOM WORKS ESSENTIAL TO CONTINUED OPERATION

It is apparent, therefore, that the timing of provision of funds is appropriate to business needs in almost every case and that, broadly, funds are not being provided before they are due. This is to be expected, however, as grant applications also call for investment from other sources including, in most instances, the business themselves. These are likely to be resistant to making investment until necessary.

Level of funding award and deadweight

Eligibility criteria state that RPSGS funds are to be for not more than 50% of the total works costs for eligible infrastructure enhancements and LECs should make checks to ensure that the award only covers that part of the cost that businesses are unable to bear through other means.

Data from recipient businesses suggests that the average award to date is 16,100, contributing to an average estimated works cost at the time of application of 24,700. Thus the average award has been for 65% of total works costs.

Twenty-nine percent of recipients said that the level of the award was for more than half of total works cost, with a further 39% saying it was for exactly half the works cost (hence 32% received less than half of costs). These data suggest that LECs are applying significant flexibility to the 50% maximum grant award criteria.

All respondents stated that they had received the full amount of the grant for which they had applied. This suggests that companies are not being challenged to prove that funding is not available from other sources.

An estimate of the deadweight ⁹ of the RPSGS funding has been made, according to whether recipient businesses indicated they had any other way of funding the works if RPSGS had not been available. Results are given in Table 3.

TABLE 3 AVAILABILITY OF OTHER FUNDING - PROPORTION OF AWARDS

Hence it can be seen that in 11% of all awards (and 14% of awards for works other than LPG provision), the RPSGS funding was entirely deadweight, generating no benefits than those that could have been provided by other means.

In a further 8% of cases (and 9% of non-LPG cases) businesses reported that the benefits of the completion of the works accrued only because of the availability of the grant, but the expenditure from the grant was greater than that required in order to realise those benefits.

Grant expenditure (as reported grant receipts by businesses) for deadweight applications is given in Table 4.

TABLE 4 AVAILABILITY OF OTHER FUNDING - FUNDS AWARDED ¹⁰

Hence it can been seen that around 4% of RPSGS funds to date has produced benefits that could have been completely procured by other means and a further 4% has been spent on projects that could have been completed using less RPSGS funds.

Businesses were asked whether the RPSGS funded works were essential for the continued operation of the petrol station and when the works were required. Responses were as given in Table 5.

TABLE 5 WORKS ESSENTIAL TO CONTINUED OPERATION OF THE PETROL STATION - PROPORTION OF AWARDS

The total funding awarded in each category is shown in Table 6.

TABLE 6 WORKS ESSENTIAL TO CONTINUED OPERATION OF THE PETROL STATION - FUNDS AWARDED

Using this assessment of deadweight provides a different insight to that given above and suggests that 34% of non-LPG funds have been used without creating benefits that would not have arisen anyway in the absence of the RPSGS scheme (the high proportion of LPG expenditure at sites that would have continued trading is entirely consistent with the different objectives for this funding and not a cause for concern).

Combining the responses from Tables 5 and 6 enables a check on business responses to be made and an assessment of which funding was entirely deadweight and which entirely additional (i.e. not deadweight). Table 7 provides this analysis as a proportion of grants given and Table 8 shows expenditure levels.

TABLE 7 COMBINED ASSESSMENT OF ADDITIONALITY AND DEADWEIGHT - PROPORTION OF AWARDS

TABLE 8 COMBINED ASSESSMENT OF ADDITIONALITY AND DEADWEIGHT - FUNDS AWARDED

By comparing these data, we have a method for assessing and cross-checking deadweight expenditure. Overall, 53% of applications (representing 48% of funds awarded) have been stated by businesses to have some element of deadweight expenditure. When LPG funding is removed from the analysis (in line with the different objectives as outlined above), for non-LPG works, deadweight funding has affected 24% of applications and 35% of funds. In some of these cases, RPSGS funds were essential to the completion of the works undertaken, it is just that businesses did not feel that the works were essential to the continued operation of the petrol station.

Deadweight expenditure has not been confined to a particular LEC, although all the locations reporting expenditure that was entirely deadweight are located in the HIE area.

Four of the recipients stated that the cost of the works undertaken had increased between the cost estimate (and application for RPSGS) and works completion ¹¹. However, in none of these cases did this cost increase result in additional funds being granted by the RPSGS (in three of the four cases the businesses invested more of their own capital and in the remaining the fuel company provided additional funds). It is likely that these funds could, at least in theory, have been available at the time of the RPSGS application and used to reduce the amount of the award.

Indeed, the majority of non-RPSGS funds used for the improvement works was business capital or borrowing. Table 9 shows which funding sources were used in addition to RPSGS (note that this refers only to funding sources, not the proportion of funds drawn from each source).

TABLE 9 OTHER SOURCES OF FUNDING IN ADDITION TO RPSGS

Note: seven businesses reported using two other sources.

It is apparent that few businesses were required to justify the expenditure to other public sector agencies and hence had further checks on deadweight made.

Ten of the 38 recipients (26%) report that they are less than eight miles from the next nearest fuel station (with nine of the ten being less than 5 miles away). Of these, however, eight were awarded RPSGS for installation of LPG supply but two sites remain having received RPSGS funds within eight miles of the next nearest site. Both of these two reported as being approximately three miles from the next nearest station. Both had received funding for new or replacement pumps and one additionally for new underground storage tanks.

No petrol stations that reported selling more than one million litres of fuel per annum have received the grant for works other than LPG installation (these works being exempted from this criterion).

It is clear, however, that while the criteria for distance and fuel volumes sold are being broadly adhered to, there may be a significant proportion of award settlements for a larger sum than the minimum needed from this source by businesses to complete works. Additionally, in some cases RPSGS has been used to fund works that, whilst they may have produced benefits for the business, were not essential to its continued operation. Some of the funds that have been provided are pure deadweight in terms of overall benefit to the fuel supply network and in other cases businesses have received more grant than that strictly necessary to procure the desired benefits.

This has reduced the apparent benefits arising from the scheme (in those cases where works would have been undertaken anyway) and affected the cost to benefit ratio in many other cases, as the same benefits could have been achieved at reduced cost to the RPSGS.

« Previous | Contents | Next »