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Review of the Rural Petrol Stations Grant Scheme Final Report

10 OPTION APPRAISAL

In this section we appraise those options taken forward from the initial sifting process as outlined in section 9.

Successful options should be those that best meet the output objectives for the scheme as outlined in section 3. These are to:

• support the retention of a sustainable and accessible network of fuel supply throughout rural Scotland;
• to enable a reasonable level of access for rural communities to a more sustainable vehicle fuel (LPG);
• to reduce the financial and time costs to local residents, businesses and tourists of accessing fuel;
• to minimise the environmental disbenefits arising from the supply of fuel; and
• to maintain those other services that depend on the continuing operation of a petrol station.

It is inherent within each of these objectives that there should be some value for money assessment and that the RPSGS should strive to achieve its objectives with minimal deadweight.

Initial assessment of options

We have undertaken an initial assessment of options. The primary purpose of this is to identify those options outlined above that, for whatever reason, are not worthy of detailed consideration. These options are given in Table 34.

TABLE 34 OPTIONS REJECTED IN INITIAL SIFT

Those options not included in the above table are taken forward for more detailed appraisal below. Our assumed do-minimum reference case is the retention of the scheme in its current form.

We commence the process with a review of the estimated costs (in terms of relative eligibility to current levels) of changes to the eligibility criteria.

Costs of relaxation of eligibility criteria

The eligibility criteria presently place three constraints on rural petrol stations for award of RPSGS. They should be:

• More than 8 miles from the next nearest petrol station;
• Sell less than 1 million litres of fuel per annum; and
• Be more than 30 minutes drive from the edge of a town of more than 30,000 population.

We have made use of data available from Catalyst to assess the magnitude of effect of changes to these eligibility criteria. This data reports that there are presently 1,133 petrol stations in Scotland. Figure 6 shows the distribution of all petrol station sites in Scotland, including a 15-mile buffer around the towns of more than 30,000 people (this area covers all of the Central Belt, Fife, Perth, Dundee and Ayr, plus the hinterlands of Aberdeen, Inverness and Dumfries). It is recognised that, along some main routes, a 30-minute isochrone extends further than 15 miles, but this assessment provides a reasonable indication of the magnitude of effects.

FIGURE 6 ALL RECORDED SCOTTISH PETROL STATION SITES AND APPROXIMATE 30-MINUTE ISOCHRONES TO URBAN CENTRES

Effects of changing minimum distance criterion

We have undertaken analysis of this data and calculated the straight-line distance between petrol stations ³⁴. Presently, only 36 petrol stations in Scotland are more than eight miles from their nearest neighbour, as shown on Figure 7. Thirty-one of these sell less than one million litres of fuel per annum and one is within an estimated 30 minute drivetime of an urban centre.

By comparison, Figure 8 shows the locations of those petrol stations more than five miles from their nearest neighbour. There are 112 such petrol stations (of which, 17 sell more than one million litres and 12 are within our estimated 30 minute isochrones).

This shows that changing the mileage criterion has a significant effect on the number of petrol stations that may be eligible for RPSGS. The estimated number of stations according to the distance to next nearest station (rebased for comparison to the number eligible at an 8 mile limit) is shown in Figure 9.

FIGURE 7 PETROL STATIONS MORE THAN 8 MILES (STRAIGHT LINE DISTANCE) FROM NEAREST NEIGHBOUR

FIGURE 8 PETROL STATIONS MORE THAN 5 MILES (STRAIGHT LINE DISTANCE) FROM NEAREST NEIGHBOUR

FIGURE 9 EFFECTS OF DISTANCE CRITERIA ON ELIGIBILITY

Effects of changing maximum sales criterion

Of the 36 petrol stations more than eight miles crow-fly distance to their next nearest neighbour, only five (according to the Catalyst dataset) sell more than one million litres of fuel per annum. Three of these five sell less than two million litres.

Removal of maximum fuel sales criteria altogether would, therefore, only increase total eligibility by around 14%. Doubling it from its present limit would increase eligibility by 8%.

Conversely, seven of the 36 report selling between 500,000 and 1,000,000 litres, so halving the eligibility limit would reduce eligibility by around 20%.

Effects of changing drive time criterion

Only one of the petrol stations more than eight miles from its neighbour is clearly within a 30-minute drive of an urban area so, while this distance criterion remains in place, reduction or removal of the 30-minute drive time assessment will have limited effect on number of applicants.

LPG criteria

Given that objectives for the LPG grant are fundamentally different from those for the other elements of RPSGS (focussed mostly on increase in service level, rather than maintenance of the existing network), the effects of changing eligibility criteria cannot be assessed in the same way as those discussed above.

There remain large parts of Scotland (both close to and distant from the main urban centres) that do not have ready access to an LPG supply and there is yet to be what would be considered, as for the other elements of RPSGS, a "sustainable network" of sites.

There is, therefore, justification for retaining the scheme for expansion of LPG provision, providing that this continues to meet wider environmental objectives. However, given that current sales remain at a low level, there does not appear to be merit in providing funds for increased density of fuel supply sites beyond that available from the RPSGS at present (i.e. sites at not less than 15 miles separation should be funded).

Furthermore, there is concern that the costs of equipment supply and on-going deliveries to some island LPG sites may not be justifiable for the environmental benefits that result from the use of a more sustainable fuel by a relatively small and constrained vehicle fleet. It is recommended that those island petrol stations that presently serve only a limited potential market are assessed in detail before provision of LPG equipment is funded. RPSGS should be provided with guidance that enables the costs and benefits of LPG provision to be assessed in these cases, and a case for investment proven before grants awarded.

Summary

From this analysis it is clear to see that the present criteria that petrol stations be more than 30 minutes drive from the edge of an urban area and sell more than one million litres of fuel per annum have limited effect on the total number of eligible sites.

The distance to nearest neighbour, however, has a substantial effect on eligibility. A reduction in minimum distance criterion to five miles from the present eight, for example, would more than double the number of eligible sites.

There is no evidence from knowledge of RPSGS funded works to date that the costs of individual schemes coming from changes to eligibility would differ from those occurring under the present scheme. It is our assumption, therefore, that the total cost of the scheme would vary proportionally in line with the number of eligible stations as outlined above.

Appraisal of options for relaxation of eligibility criteria

We have seen in our analysis of the economic, social and environmental benefits of the RPSGS that the benefit to cost ratio of typical schemes arising from the existing scheme is substantial and that a key determinant of this ratio is the distance between neighbouring petrol stations. It follows, therefore, that the scheme would, in most cases, return net benefits if the minimum distance criterion was reduced.

Option 3a (reduce minimum distance to neighbouring station): The benefits arising may differ widely between individual cases, however, according to the distance to next petrol station, the number of customers and the dependence of other services offered on the sale of fuel.

Placing an arbitrary minimum drive distance to next nearest petrol station will not, therefore, necessarily enable RPSGS funding to be best targeted at meeting its objectives. It will be more appropriate to target funding at those sites most deserving of improvement according to an assessment of likely benefits. In general, greater benefits will accrue from investment at those sites more distant from their neighbours, but most efficient use of funds will not be made for a site at which substantial benefits occur if it were to be excluded due to distance criteria alone.

Option 3d (increase maximum sales volume limit): Similarly, refusing funding applications from those petrol stations that sell more than one million litres of fuel per annum will also not necessarily ensure best use of funding. Larger petrol stations will, in general, generate larger disbenefits if closed than smaller ones, due to more customers being affected. It is also not necessarily the case that a petrol station selling more than one million litres will be able to fund improvements without external assistance, especially as fuel sales contribute only a relatively small proportion of the profit of most rural petrol stations ³⁵.

Review of these distance and sales volume criteria suggests that a move away from predetermined limits towards more review of individual applications would be worthwhile. This has implications for the application procedure and these are discussed below.

Options 3f, 3h (reduce or remove 30-minute drive time to urban area): Although it has been demonstrated that the 30-minute isochrone has limited effect on the number of eligible petrol stations, it is clear from the scheme objectives that some form of distance from town assessment is appropriate in order that RPSGS funding is targeted to rural areas and not channelled to urban or peri-urban sites.

We have given consideration to other methods of defining rural areas. The most suitable of them appears to be the 8-fold urban/rural classification as defined by the Scottish Executive. This, however, uses town populations of 10,000 that do not necessarily have the same frequent travel patterns from rural hinterlands as larger settlements. Retaining the existing drivetime isochrone, therefore, appears to be the most appropriate measure for focusing RPSGS funds to rural areas.

Option 3i (enable funding of non-fuel supply infrastructure): Many petrol stations report a desire to make improvements to the business beyond those items currently eligible for RPSGS funding. Typically, these relate to investments related to improving service to customers, including new forecourts and canopies.

Whilst these improvements would generate benefits for customers, they do not fall within the scope of meeting objectives for the RPSGS as no contribution to the fuel supply network or reduction in cost, time or environmental disbenefits are achieved. These improvements should also assist the business in attracting more customers and hence, through improvements in turnover and profitability, be theoretically fundable by other means so long as the benefits are sufficiently great.

It is therefore recommended that RPSGS funding remain targeted at fuel supply infrastructure only. Should a local need be identified for other improvements to the business, these would have quite different objectives from those of the RPSGS and there may be potential benefit in their funding through other sources.

Option 3l (criteria for LPG same as for other fuels): Whilst sales of LPG in rural Scotland remain at a very low level, there is no case for public sector investment in provision to ensure that LPG is available at every site currently selling petrol and diesel as the costs outweigh the benefits currently available. This may, of course, change in future if the use of LPG becomes much more widespread.

The justification for investment in LPG provision at a particular station remains similar in principle to that for other parts of the RPSGS. The existing framework has allocated RPG provision largely on a first-come first- served basis in rural Scotland and will, in some cases, have led to LPG installations being provided at locations where they are unable to maximise potential take up (for example through the provision of supplies at a highly rural site that has later precluded investment in supply in a small town). It is thus concluded that the scheme is not necessarily best meeting objectives through this lack of strategic planning.

In order to overcome this, it is necessary to undertake a detailed investigation of the environmental costs and benefits of LPG provision in order to assess what distance and population thresholds are required for stations to be worthwhile. All petrol stations in the area could then be notified of the willingness for RPSGS funds to be spent in a particular area and 'bids' invited in order to secure the improvement for minimum cost to the grant. By this means, a compromise of an LPG network that best meets objectives with minimisation of RPSGS expenditure can be sought.

Option 3m (find strategic sites, without existing eligibility criteria): we have indicated above that removal of some of the eligibility criteria will contribute to the objectives of the RPSGS, in favour of prioritising those sites that create the most significant benefits. More commentary on this option is provided in the recommendations section below.

Option 3n (different criteria for islands): in line with option 3m, those highly important sites that are the only ones on a particular island or are highly remote from others will generate substantially greater benefits than the average rural petrol station. It is therefore apparent that these locations have a stronger justification for receipt of RPSGS funds.

Option 4a (change scheme administrators): in the light of the potential changes to eligibility criteria and the deadweight of some of the funding granted by the RPSGS to date, consideration is given to changing the present administrators of the scheme and replacing the role of the LECs with some centrally-appointed administrators. Overall, however, we consider that the merits of local contacts and knowledge of local situations are such that there should be a strong continuing role for the LECs in working with businesses and helping them to identify opportunities, albeit that some strengthening of rigour of application checks may be beneficial (see below).

It is noted, however, that were an increase in administrative effort required arising from other options, LECs may seek increased resources.

Option 4b (tighten checks on applications): to tighten checks on the availability of other funds to assist rural petrol stations would appear to be necessary in order to enable RPSGS to meet its objectives without significant wastage of funds. It has been estimated for this study that the benefits of 24% of all successful non-LPG grant applications could have been secured even if the grant had not been in place and therefore that this proportion provided no contribution to RPSGS objectives.

To tighten checks would require careful scrutiny of businesses' plans, working with owners to identify whether works are truly required and from where other funding could be available before an RPSGS award is made. It is recognised that this will place an additional administrative burden on the grant scheme. If applied successfully, however, such an approach will bring substantial efficiency benefits to grant expenditure.

Moreover, best practice would suggest that the person making the final decision on whether to award a grant is not the same as the person making the contact with the petrol station and assisting them with their application.

Option 4c (change maximum proportion of works cost fundable fro RPSGS): we have seen that many successful applications to date have been for more than the recommended 50% of estimated works cost. Maintaining a requirement that the business provides a substantial part of costs from non-RPSGS sources provides an important contribution to objectives in that it both places an incentive on businesses to reduce works costs as far as possible and also minimises the risk of RPSGS being invested in businesses that lack long-term viability.

The 50% level therefore remains appropriate and, as we have shown that this has been exceeded in many awards to date but that there is deadweight in many of these schemes, we would propose that it is only in truly exceptional circumstances and where a specific need can be proven that awards in excess of 50% of works costs are granted.

Option 4d (separate assessment of LPG network): in order to provide cost effective funding for LPG provision, separate analysis of the costs and benefits of awards is required. This should be completed in line with option 3l as outlined above.

Option 5a (marketing/tourist information): many rural petrol stations have very low levels of fuel throughput. Although the scope for increasing sales to local people remains limited, our survey work has indicated that many visitors to the area are uncertain about fuel station locations (25% of visitor respondents said that they had at times worried about running out of fuel in rural Scotland). Evidence has not been collected for this study, but this is likely to generate a switch in demand from rural to urban petrol stations, as visitors make certain of filling up where they are confident of doing so.

Increased availability of information on petrol station locations and opening times through tourist information sources may help to improve the viability of rural petrol stations. Given an average of 11,000 tourist customers per annum and a profit of 0.36 per transaction (36 litres sold to the average tourist, at an estimated net profit of 1 pence per litre), a 5,000 national marketing campaign would need to generate around 250 additional tourist customers per RPSGS recipient petrol station to date in order to make a return on investment. Although this study has not investigated the potential for such a scheme to generate increased sales, it would seem probable that such a return is achievable.

Option 5b (local signing): in parallel with national or regional marketing of the location of rural petrol stations, local signing would also benefit some stations in raising awareness of the service amongst those people unfamiliar with the area. Given the specific local issues inherent with such proposals and the potential costs involved for procuring high quality signing, however, we would recommend that this option be left to the discretion of individual petrol stations to pursue with highway authorities.

Option 5c (promotion of alternative fuel supply methods): alternative methods of fuel supply mostly relate to the provision of unstaffed petrol station sites, able to handle payment by credit card. As outlined in section 7 of this report, however, such sites require a trained member of staff to be on call during hours of operation. This, combined with the works cost required for credit card and safety equipment and the loss of potential for businesses to gain from sales of other goods (that are, as a proportion of sales value, in general much more profitable than fuel) is believed to be the predominant reason why so few sites are operating unstaffed as present.

As a move towards unstaffed operation has not been the subject, as far as we are aware, of any approaches to LECs for RPSGS and the advantages appear to be limited, it is not felt necessary to amend RPSGS guidelines to specifically encourage this. If, however, significant community benefits can be shown to arise from specific applications it is recommended that each be taken on its merits by scheme administrators and an investment case considered.

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