Wednesday, March 4, 2015

News: Rotherham's Digital Region costs stand at £8.2m


Rotherham Council is expecting to pay out £8.2m to cover its share of the costs of the failed Digital Region superfast broadband project.

The council, along with the other three authorities in South Yorkshire joined with the now defunct regional development agency Yorkshire Forward in 2006 to progress plans to bring continuous 25mb+ broadband to over 97% of South Yorkshire. At the time it was clear that BT had no plans to upgrade its own network in the region.

A combination of delays in appointing a contractor to build and run the network, failing to adjust as necessary in a fast-moving business sector and zero income risk being allocated to the network operator made the business hopelessly uncompetitive.

With only 3,000 of the 100,000 customers it needed, the remaining shareholders agreed to halt their search for a private sector partner and begin a managed closure of the fibre optic network. The network was switched off last year.

At the first meeting of the new commissioners, brought in by the government to take over the executive functions of the council that was deemed "not fit for purpose," Stuart Booth, interim strategic director of resources and transformation, was quizzed on the council's ongoing capital programme.

The council's capital expenditure includes an estimated £6.2m to cover its costs of closing down Digital Region Ltd which can be added to the initial £2m capital loan at the start of the project.

The money, which has been found as the council puts forward a budget with further savings of £23m, has been created using capitalisation. Capitalisation is where the Government permits councils, in special circumstances, to treat revenue costs as capital costs. This increases their flexibility, because they can then meet those costs using their existing borrowing powers or capital receipts, for example, from asset sales.

Estimates from Sheffield Council put the cost of closure at £83m and Rothbiz revealed last year that Rotherham Council had budgeted an additional £7.58m of support on top of the original £2m of capital loans. The shareholders had to agree to provide sufficient funds to enable services to be migrated without interruption of business and to enable the company to meet its debts.

Following the closure of Yorkshire Forward, the government had to agree to provide at least 45% of the funding (up to £45m) to cover a significant proportion of the repayment of the ERDF grant which has to be paid back to Brussels, because the original conditions were not fulfilled. It will also pay a proportion of the contract due to the original operator, Thales.

Booth explained at the meeting that the estimated cost of closing down the company has been reduced and that liquidators are expected to be appointed soon.

Auditors, KPMG, published an independent review into the local authority involvement in the Digital Region project. It found that key council decisions on whether to invest were based on a business case full of assumptions with a lack of a robust sales and marketing plan.

Auditors also found that the business case did not fully show value for money, board members put forward by councils did not include any IT specialists, council reports failed to fully show the importance of achieving rapid take-up of services to the financial success of the project, and that there did not seem to be a clear exit strategy as the project became more problematic and a positive outcome became more unlikely.

Rotherham Council's revenue and capital budgets are expected to receive official approval at a full council meeting today.

Images: Digital Region


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