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4.(iii) FINANCE AND SUSTAINABLE GROWTH

Introduction

The Finance and Sustainable Growth portfolio oversees the investment in transport; enterprise, energy and tourism; and, in the water industry.

The investment comprises both direct public funding of projects as well as significant levels of private sector investment, for example, in the transport and energy sectors.

Table 4(iii).1 summarises the forecast investment in the Finance and Sustainable Growth portfolio over the medium term.

Table 4(iii).1: Forecast Infrastructure Investment - Finance and Sustainable Growth

The remainder of this chapter provides details on the individual investment opportunities within the transport; enterprise, energy and tourism; and, water industry and provides an indication of the key policy objectives the investment is addressing.

TRANSPORT

In terms of capital expenditure, transport is the biggest spending element within the Finance and Sustainable Growth portfolio, covering Scotland's railways, motorway and trunk road network, ferries, waterways and air services.

The national programme does not cover local roads and other local transport infrastructure, although there are some channels of financial support from the Scottish Government for these. Chapter 4(vii) details examples of the main local transport infrastructure investments (with a capital value greater than £5 million) to be funded by local authorities.

Policy Context

As set out in the Government Economic Strategy, the approach to transport is to focus investment on making connections across and with Scotland better, improving reliability and journey times, and seeking to maximise the opportunities for employment, business, leisure and tourism. Investment will also provide sustainable, integrated and cost effective public transport alternatives to the private car, connecting people, places and work, across Scotland.

The total investment within the portfolio comprises both direct public expenditure and also private sector expenditure on public infrastructure which is paid for over the duration of a concession. All publicly funded Rail, Motorway and Trunk Road capital projects are delivered through the private sector. The actual procurement route is determined through value for money assessments for each individual project. Further detail on the available funding mechanisms is provided in Chapter 2.

Table 4(iii).2 summarises the total expected public investment within this portfolio split by sectors.

Table 4(iii).2: Forecast Infrastructure Investment - Finance and Sustainable Growth

Forecast public expenditure for transport is an estimate to the end of the Strategic Transport Projects Review ( STPR) implementation period in 2022 based on baseline budgets for 2010-11. Further detail on existing private expenditure is provided in Table 4(iii).5.

The STPR will identify the land-based investment priorities for transport in Scotland from 2011-12 to 2022 to be delivered in the context of the Government's Purpose and five Strategic Objectives. The review, currently being undertaken by Transport Scotland and due to report in Summer 2008, will let us plan and prioritise projects and improvements to deliver an efficient, integrated transport network fit for the 21 ^st century to increase sustainable economic growth, provide key connections, and open up opportunities. It will consider the future picture of transport in Scotland and prioritise investment to deliver our Purpose and key strategic approaches and policies for transport. A whole range of schemes, important to communities and businesses across Scotland, will be considered objectively against both local merits and national priorities.

Once complete the STPR will recommend a programme of interventions that will include new infrastructure projects, better incentives for sustainable travel and more carefully targeted investment across the country.

Replacement Forth Crossing

The proposed Replacement Forth Crossing scheme, fast-tracked as part of the STPR, is set to be the largest construction project in the country in a generation and will create a new modern and iconic structure for Scotland in the 21 ^st century. The Replacement Forth Crossing connects communities on a local, regional and national scale. As announced to Parliament in December 2007, this strategic crossing will be a cable stayed bridge upstream of the existing road bridge and is vital to maintain the capacity and capability of the national and regional road network. The total estimated capital cost for the new bridge with a segregated public transport corridor is between £3.2 billion and £4.2 billion in outturn prices. The exceptional nature of this project means that it cannot easily be accommodated within the established funding cycle. The Scottish Government is considering innovative and additional funding mechanisms to deliver the project and further announcements on procurement options and the associated processes will be made during 2008.

Transport: Public Investment

Table 4(iii).3 details both the Scottish Government funds which have been allocated to the transport sector in the Spending Review 2007 and also a forecast of the public funds likely to be available to fund future projects within this sector:

Table 4(iii).3: Scottish Government Transport Funding

Future developments are estimated from 2011-12 to the end of the STPR implementation period in 2022. Details of rail, road and bridge projects, with a capital value in excess of £5 million, within this sector are summarised in the Table 4(iii).4. These are projects to be taken forward over the Spending Review 2007 period.

Table 4(iii).4: Public Investment in Transport Projects (over £5m)

The capital value per project indicated in Table 4(iii).4 is inclusive of capital costs prior to 2008-09. The forecast capital costs may also be funded through local government contributions - where applicable, these are detailed within Chapter 4(vii). Further details of a selection of the above projects are provided below:

Public Transport Case Studies

Rail

• Edinburgh Waverley Station infrastructure works will improve access and capacity at the station, increasing the number of services in operation and reducing congestion.
• The reopening of the Stirling-Alloa-Kincardine line will provide passenger services from Alloa to Stirling and shorter freight journeys to Longannet Power Station.
• The City of Edinburgh Council's tram project will provide a modern, safe, efficient and sustainable fully integrated public transport system from north Edinburgh to the city centre and west to Edinburgh Airport.

The Scottish High Level Output Specification ( SHLOS), published in July 2007, set out Scottish Ministers expectations for Network Rail's future investment. It is a £3.6 billion rail blueprint aimed at offering more high quality public transport alternatives to the car. The HLOS includes a package of measures to improve journey times, improve reliability and increase capacity across the rail network in Scotland. This includes provisions for Edinburgh to Glasgow rail improvements, faster more frequent services between Inverness and Aberdeen and the Central Belt, and between Edinburgh and Glasgow, a programme of infill electrification, and improved infrastructure and service provision on Ayrshire routes and between Aberdeen and Inverness.

Motorway and Trunk Road Network

Resources are allocated for the enhancement of motorway and trunk road infrastructure. Where necessary, targeted infrastructure improvements will be made to add to our road capacity to support the economy and the people of Scotland by improving the reliability and safety of journeys.

Motorway and Road Case Studies

• The M74 Completion scheme will complete a vital link in the Central Scotland Motorway Network, joining the existing M74 motorway with the M8 south of the Kingston Bridge. The scheme is one of the Scottish Government's top priority transport projects and will bring major benefits to the City of Glasgow and West Central Scotland, reducing journey times on roads, helping to alleviate congestion on the existing M8 and bringing much-needed new investment in homes and jobs. It is also a crucial piece of the infrastructure which is required to provide excellent transport facilities for the visitors and athletes expected in the city as a result of the 2014 Commonwealth Games.
• The Upper Forth Crossing at Kincardine, providing a new bridge and associated trunk roads, will reduce traffic congestion in Kincardine, improve road safety in the area, and open up the wider area to economic benefits. The project also includes an extensive network of new cycleways and footways.
• Investment is also planned for improvement schemes on the A68, A75, A77, A9 and A96. The A68 Dalkeith Bypass will connect the A68 to the south of the town to a new junction on the A720 Edinburgh City Bypass between Sheriffhall and the A1. The A75 Cairntop to Barlae, Dunragit Bypass and Hardgrove to Kinmount projects will provide vital overtaking opportunities on a crucial strategic link in the trunk road network to the ferry port at Stranraer and Cairnryan.

The STPR will examine the future improvements that will be made to Scotland's road networks. This will cover a number of key strategic corridors, including those from Perth to Inverness and Inverness to Wick/Thurso and the Northern Isles. The Scottish Government is committed to the plan for the dualling of the key A9 corridor between Perth and Inverness, Scotland's largest trunk road.

Transport: Private Investment

Table 4(iii).5 details the total estimated private sector investment in transport infrastructure.

Table 4(iii).5: Transport Sector: Forecast Infrastructure Investment - Private Funding

The value ranges presented in the table above relate to projects within the existing Transport Scotland investment programme where procurement through NPD and RAB has been approved (investment costs for the Replacement Forth Crossing are excluded as the procurement route is yet to be determined). The STPR will identify a programme of investment to 2022. Procurement options for any infrastructure projects recommended by the Review will be determined on a value for money basis.

Details of the projects, with a capital value in excess of £5 million, within this sector are summarised in the Table 4(iii).6:

Table 4(iii).6: Private Investment in Transport Projects (over £5m)

Rail Infrastructure - Private Investment

The major rail public transport infrastructure programme is also being delivered by the private sector through NPD or the Network Rail Regulatory Asset Base ( RAB). The Airdrie to Bathgate, Glasgow Airport Rail Link ( GARL), Edinburgh and Glasgow Improvements, and Dunlop to Kilmarnock loop projects will be subject to RAB funding.

Details of these projects are provided below:

• The Borders (Waverley Railway) project will reintroduce a rail link to provide a passenger transport service from Edinburgh through Midlothian to Tweedbank in the Scottish Borders.
• The Airdrie-Bathgate project will introduce a double track railway between Drumgelloch and Bathgate to link communities in North Lanarkshire and West Lothian more effectively and efficiently with Edinburgh and Glasgow. The project is a major investment in Scotland's public transport network and is a key priority for the Scottish Government.
• GARL will provide a new direct rail link between Glasgow Central Station and Glasgow International Airport and deliver a fast, frequent, and reliable modern service.
• The Edinburgh to Glasgow Rail Improvements project, also a key part of the STPR, consists of a programme of sustained investment over the next 8 year period to provide more frequent and greener rail services between Glasgow, Edinburgh, Cumbernauld, Stirling and Dunblane through investment in electrification and additional capacity. The project also includes a new rail interchange with the Edinburgh tram project at Gogar to connect to Edinburgh Airport.
• The Dunlop to Kilmarnock Loop rail project will enhance capacity and service provision between Glasgow Central and Kilmarnock, reducing overcrowding on peak-hour services and promoting modal shift to public transport.

Road Infrastructure - Private Investment

The road projects which will be funded through private investment include:

• The preferred line for the Aberdeen Western Peripheral Route will provide a 46km long bypass around the city of Aberdeen with a fast link section to Stonehaven. The scheme will improve the strategic links for industry and commerce to the north and west of the city, remove through traffic from the city and play a major part in the development of a modern integrated transport system for the north east of Scotland.
• Alongside the M74 Completion, the M8 and M80 projects represent a significant step to the completion of the Central Scotland Motorway Network. The M8 Baillieston to Newhouse scheme will complete the M8 between Edinburgh and Glasgow by providing a new section of motorway between the M73 at Baillieston and the A73 at Newhouse. The M80 project will upgrade the A80 Glasgow to Stirling Trunk Road between Stepps and Haggs - one of Scotland's busiest sections of all purpose road - to motorway standard. Both schemes will generate significant improvements in journey times, reliability and safety.
• The M74 Raith Interchange will deliver a roundabout linking the M74 motorway with the A725 Bellshill Bypass and East Kilbride Expressway. The project will reduce congestion on the A725 Bellshill and Bothwell approaches, and on the M74 ramps that connect to the junction.

Summary

The Scottish Budget includes increased capital investment in Scotland's strategic transport networks to support the economy through the efficient movement of goods and people. An extensive capital programme of major enhancements to rail infrastructure and services and enhancement of the motorway and trunk road network is already committed. The Strategic Transport Projects Review will recommend a programme of land-based interventions for implementation between 2012 and 2022. As described above, this could include new infrastructure projects, better incentives for sustainable travel and more carefully targeted investment across the country. It will be geared to delivering real benefits to business and communities whilst ensuring value for money.

ENTERPRISE, ENERGY & TOURISM

Table 4(iii).7 details the forecast public investment in enterprise, energy and tourism:

Table 4(iii).7: Enterprise Sector: Forecast Infrastructure Investment - Public Funding

Details of the projects, with capital funding through the Enterprise Networks in excess of £5 million, are summarised in Table 4(iii).8. Some of the projects are funded in partnership with local government and Urban Regeneration Companies. Further details on Urban Regeneration Companies can be found in Chapter 4.(iv) and on local government funded projects in Chapter 4.(vii).

Table 4(iii).8: Infrastructure Projects over £5m

Scottish Enterprise

Scottish Enterprise are committed to funding and driving forward a number of projects of scale that are of both national and regional importance that include:

Scottish Venture Fund and Seed Fund

The Scottish Venture Fund aims to make more private sector investment capital available in Scotland to companies at an early stage in their development. The Fund takes a co-investment approach, investing alongside private sector investors on equal terms.

Glasgow Waterfront

A suite of projects to improve and enhance the area will include:

• Pacific Quay: Works will continue in the Pacific Quay area further enhancing Scotland's main digital media park. Key areas of work will include the preparation of land for a Digital Media Quarter. In addition, key public realm and common infrastructure works progress in accordance with the Pacific Quay Stakeholder Group Masterplan.
• Broomielaw/Tradeston: Public Realm works will support the development of a financial services district in the Broomielaw and Tradeston areas and will include regeneration of the quay walls.
• Merchant City: Enhancements to the Merchant City area of Glasgow in alignment with the Glasgow Tourism Destination Plan. Works will include refurbishment of the Briggait building and contribution towards the cost of creating a cultural and creative industries employment space within the North Block Building.

Bio-quarter expansion

The planned purchase of land adjacent to the current bio-quarter site to allow for the expansion of the existing Edinburgh Bio-quarter. Also the relocation of the Niddrie Burn within the Bio-quarter will be undertaken in order to free up adjacent land for further development.

Ravenscraig

A key area for investment will be to support the predevelopment infrastructure requirement as agreed with the existing Joint Venture Partnership strategy. Work will also be undertaken on the infrastructure required to support Phase 2 of the development.

Energetica

This project aims to strengthen Aberdeen's reputation as a world renowned energy region and the area under development stretches between Aberdeen and Peterhead. Key aspects of the project will be the development of 25 R&D Units at Aberdeen Science and Energy Park to provide workshop/laboratory and office space for high growth companies in the energy sector.

Destination Loch Lomond

2008-09 will see the Destination Loch Lomond project continue with key areas of focus being the development of the Bowling Esso Site, the development of a 17 acre site adjacent to Loch Lomond Phase 1, and a programme of events to increase the attractiveness of the Loch Lomond tourist offering.

Edinburgh International Conference Centre

Acquisition costs associated with the purchase of land and associated feasibility/design/public realm costs for the expansion of the development.

Clydebank rebuilt

Key infrastructure costs in relation to the Clydebank Rebuilt URC. Work will be undertaken at Queens Quay, John Knox Street and Civic Heart.

Highlands & Islands Enterprise ( HIE)

Plans are in place for the development of a number of capital projects throughout the Highlands and Islands area. This 'pipeline' of projects provides HIE with the flexibility to either accelerate or slow down project spend as it responds to new or emerging pressures that may arise through the duration of the spending period.

Energy

Energy infrastructure is developed by the private sector and represents a substantial investment in the Scottish economy. Details are not recorded in this document other than in relation to grant payments to support the development of emerging technologies. Recent years have seen substantial new investment in renewable energy - onshore wind in particular - and this is set to continue. Whilst smaller-scale proposals are approved by local authorities, the Scottish Government approves proposals for onshore wind generating capacity over 50 MW. We estimate that wind projects totalling over 600 MW are currently approved but not yet operational. The capital investment associated with 1 MW of windpower, for one of the larger projects, has been estimated at £1 million. This gives an idea of the scale of current investment in electricity generation.

Over the next 5-10 years alternatives to conventional power generation will continue to develop. There are already an estimated 29 proposals seeking approval from Scottish Ministers and more with local authorities. A market has developed and will expand with emerging technologies presenting new funding opportunities. Moreover, the Scottish Government wishes to see energy schemes which not only contribute to the energy requirements and reduction of carbon emissions but which also provide benefits for local communities and improve their sustainability for the future. There are examples already, such as in Fintry and Eigg or Glasgow City Council's consultation on opening its own wind farm to meet some of the city's energy needs. These innovations provide incentive to explore other opportunities.

The WATES project aims to provide funding for the construction and deployment of a number of different full-scale device prototypes, to be deployed in the main at the European Marine Energy Centre in Orkney. The project also includes support for upgrades to the infrastructure at the Centre necessary to accommodate the devices.

The following map indicates the electricity generation, transmission and renewable energy projects in Scotland.

Telecoms

Pathfinder projects include 2 pilot 'aggregation projects' in the Highlands and Islands and South of Scotland which have pooled demand for broadband from schools and other council buildings (excluding health). The Scottish Government has committed £90 million in total to these two projects. The contracts were recently awarded and are for 7 years but with rollout of services over the first 2 years, 2007-09. Pathfinders will deliver scaleable, managed connectivity to all primary and secondary schools (over 600 in total) in those regions as well as to many other (over 660) council sites including libraries and offices.

CLIMATE CHANGE AND WATER INDUSTRY

Policy context

The Scottish Government's Purpose focuses on increasing sustainable growth, and to help facilitate this, responsibility for tackling climate change lies within the same portfolio as economic growth, transport and planning. A number of programmes and policies across the Scottish Government contribute to tackling climate change. Provision under the Climate Change and Water Industry heading includes a budget to contribute to the costs of the UK Committee on Climate Change, and the costs of consultation in 2008-09 for the Scottish Climate Change Bill.

Investment in the Water Industry by Scottish Water represents the majority of expenditure under the Climate Change and Water Industry subheading. Scottish Water is a Public Corporation accountable to Ministers and through them to Parliament. It is responsible for providing water and sewerage services to some 2.2 million household customers and 135,000 businesses throughout Scotland.

Scottish Water

Improvements to water services in Scotland are specified by Ministers in the form of Objectives. The current set of Objectives, also known as Quality and Standards 3 covers an 8 year horizon, or two regulatory periods, from 2006 to 2014. These cover improvements to:

• Drinking water quality;
• The environment;
• Growth; and
• Customer service.

The Scottish Government requires these Objectives to be delivered over two separate 4-year regulatory periods to coincide with the price setting processes operated by the Water Industry Commission for Scotland. Respectively, these periods are 1 April 2006 until 31 March 2010, and 1 April 2010 until 31 March 2014. The requirements for each 4 year period are detailed by legally binding directions which may be found at: Water Industry Investment Directions.

Regulation

Scottish Water is regulated by three main regulators: The Water Industry Commission for Scotland ( WIC), Scottish Environment Protection Agency ( SEPA) and the Drinking Water Quality Regulator ( DWQR). The WIC is Scottish Water's economic regulator and is responsible for determining charges and ensuring that services are provided at the lowest overall reasonable cost. SEPA and DWQR are responsible for ensuring that services meet the relevant quality standards.

Investment in water

The Scottish Government's Objectives will be delivered through a combination of operational improvements and investment in Scottish Water's assets. The investment programme for the period 2006-10 is worth some £2.5 billion and comprises more than 2,000 individual projects. This investment programme supports over 8,000 construction jobs and accounts for approximately 40% of the activity of construction industry in Scotland. Further details of the investment programme for 2006-10 is summarised in Table 4(iii).9.

Table 4(iii).9: Scottish Water Revised Investment Summary ¹³

The investment from the Spending Review 2007 is estimated at £1,830 million based on the 2008-09 to 2009-10 investment plan and an estimated expenditure of £500 million in 2011-12. Expenditure for 2010-11 will be confirmed as part of the current regulatory process (known as the Strategic Review of Charges) to determine the funding requirements for the period 2010-14. This process will be concluded by the end of 2009.

It is widely acknowledged that this is one of the largest investment programmes per customer ever attempted in the UK. For this reason, the efficient and effective delivery of such a complex programme within the 4 year regulatory period presents a significant challenge to Scottish Water. Scottish Water, its regulators and the Scottish Government are monitoring progress carefully.

Capital investment in the current regulatory period is delivered by Scottish Water via its Joint Venture (Scottish Water Solutions) and through its associate delivery partners. It is currently undertaking two procurement exercises to select partners to assist in the delivery of the next investment programme for 2010 onwards.

Who is monitoring delivery?

Ministers have set up a specific group, the Output Monitoring Group ( OMG), to ensure that Ministers' objectives are delivered. The OMG brings together all major stakeholders in the Scottish Water Industry including the Scottish Government, Scottish Water, WIC, DWQR, SEPA and Waterwatch.

The OMG produces quarterly reports which summarise the progress made by Scottish Water in each quarter of the financial year. The report uses the targets and milestones shown in Scottish Water's Delivery Plan and information reports produced by Scottish Water for its regulators. Progress is colour-coded:

Red - Progress is behind target and there is no prospect of recovery over the regulatory period;

Amber - At risk of not delivering the output within the regulatory period; and

Green - On programme, or if off track will recover within the period.

Reports may be found at:
http://www.scotland.gov.uk/Topics/Business-Industry/waterindustryscot/qs3

Investment post 2014

The Scottish Government is starting a process to consider the investment objectives for the period from 2014 onwards also known as Quality and Standards IV. In due course, full public consultation of these investment objectives will be undertaken.

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