Agenda item

In accordance with the decision recorded under Article 2 of this minute, the following item of business was considered with the press and public excluded.

MATTER OF URGENCY

The Lord Provost intimated that he had directed in terms of Section 50(B)(4)(b) of the Local Government (Scotland) Act 1973, that the following item of business be considered as a matter of urgency as it was a matter of outstanding business which the Council had requested be reported on.

DECLARATIONS OF INTERESTS

Councillors Dean, Fletcher, Ironside, Malone, Reynolds, Jennifer Stewart and Kirsty West declared interests in the following item of business as members of the Board of Aberdeen Exhibition and Conference Centre (AECC) and left the meeting prior to the Council’s deliberations.

With reference to Article 20 of the minute of its meeting of 10^th February 2010, the Council had before it a report by the Director of Enterprise, Planning and Infrastructure which sought approval to withhold support for AECC’s planned hotel development, due to the unacceptably high risks associated with the proposed operational and financial structure of the current proposals from the Council’s perspective.

The report reminded members of the decision of Council of 10^th February 2010. Following this decision, officers had embarked upon a series of discussions with AECC and their advisers in an effort to complete the necessary documentation required to conclude the hotel development deal in accordance with the terms and caveats as outlined in the report to Council in February 2010, which were designed to protect the Council’s interests and ensure that the Council would not be exposed to any unreasonable risks.

The report advised that the Council’s legal advisers had been unable to submit a final report summarising the hotel development deal, and the various risks associated with it from the Council’s perspective, until 21^st June 2010 as result of delays in obtaining and evaluating the necessary documentation. The report emphasised that by the time the final report was produced, the proposed deal varied significantly from the deal submitted by AECC to Council officers at the beginning of 2010. The main differences between the proposals were contained within an appendix to the report.

Based on the content of the full report from the Council’s legal advisers and taking into account the main differences between the proposals, the report recommended that the Council do not support the proposed hotel development proposal in its current form. The report envisaged, however, that a hotel development could be delivered using a structure that exposed the Council to less risk, whilst making use of the substantial investment that had been made to date on the project.

The report went on to discuss options for the re-financing of AECC if the Council decided to withhold its support for the hotel development, as the medium term plan to put AECC on a stable financial footing, approved by Council in February 2010, assumed two cash injections as a result of the hotel development proceeding. The costs associated with the hotel development incurred by AECC prior to the current financial year (£2.3million), would require to be written off and costs incurred since the beginning of the financial year would need to be paid as soon as possible (£568,000). The report proposed that the Council provide AECC with an additional grant of £568,000 in 2010/11 to cover the short-term cash flow situation.

The report highlighted the need for the Council to instruct its internal auditors to undertake a “follow-the-public-pound” review of AECC, which would look at AECC’s articles of association, governance, delegated authority arrangements and operational procedures, as a basis for determining how the Council might best exert a more direct influence over AECC’s future strategic, operational and financial direction. This review would include a review of the costs incurred in relation to the proposed hotel development and the controls exerted in determining how they were incurred and approved.

The report also proposed that AECC undertake to secure the transfer of all intellectual property rights relating to their proposed hotel development in order that this can be fully utilised, if possible, by the Council when investigating possible alternative ways of delivering the hotel development. AECC would also be required to work in partnership with the Council and Reed Exhibitions to find a way to deliver the additional car parking/temporary exhibition space facilities required in such a way that any investment from the Council was made directly as part of the Council’s future capital programme.

Lastly, the report emphasised the importance of Council officers continuing to explore how the long term financial position of AECC could be regulated through a re-engineered financial structure and the possible injection of new funds emanating from any further property deals linked to the land adjacent to AECC.

The report recommended:-

that the Council -

(a)               reaffirm its decision of 10^th February 2010, to authorise the Director of Enterprise, Planning and Infrastructure, the Head of Legal and Democratic Services and the Head of Finance to complete the necessary documentation required to convert the existing £2million Loan Facility into preference shares, on appropriate terms, and extend the repayment date of the £7.5million Loan Facility to 17^th May 2017, subject to AECC replacing three of their current elected member Board members with three new non-elected member Board members and that the three elected members on the Board being replaced by non-elected members be Councillors Dean, Ironside and Malone;

(b)               do not approve the proposed operational and financial structure of AECC’s current planned hotel development and, in the process, accept that this would require AECC to write off costs associated with realising a hotel development, totalling £2.3million;

(c)               agree to provide AECC with a grant of £568,000 to mitigate the immediate cash-flow implications of having to write off costs incurred to date. These costs relate to professional fees associated with the production of plans, proposals and related legal, financial, investment and technical documentation connected with AECC’s efforts to realise a new four star hotel development;

(d)               instruct officers to direct the Council’s internal auditors to undertake a “follow-the-public-pound” review of AECC, which would look at AECC’s articles of association, governance, delegated authority arrangements and operational procedures, as a basis for determining how the Council might better manage AECC’s future strategic, operational and financial direction;

(e)               agree that any grant support be conditional upon AECC using all possible means at their disposal to secure the transfer of intellectual property relating to their proposed hotel development, so that this can be fully utilised, if possible, by the Council when investigating possible alternative ways of delivering the hotel development; and working in partnership with the Council (and exploring the availability of Scottish Enterprise grant support) to deliver the required expansion facilities required by Reed Exhibitions, in such a way that any financial contribution the Council may decide to make towards these facilities, can be made as part of the Council’s capital programme; and

(f)                 instruct officers to continue their efforts to deliver a four star hotel development adjacent to AECC, to enhance AECC’s future business potential; realise value from land adjacent to AECC by investigating the possibility of creating a large-scale development proposal, in partnership with private sector developers; and find an alternative mechanism to remove AECC’s debt burden.

The Council resolved:-

(i)                 to reaffirm its decision of 10^th February 2010, to authorise the Director of Enterprise, Planning and Infrastructure, the Head of Legal and Democratic Services and the Head of Finance to complete the necessary documentation required to convert the existing £2million Loan Facility into preference shares, on appropriate terms, and extend the repayment date of the £7.5million Loan Facility to 17^th May 2017, subject to AECC replacing three of their current elected member Board members with three new non-elected member Board members to be appointed following external advertisement and appointing a non-elected member chairperson, as agreed by Council in February 2010, and that the remaining five elected member Board members be replaced by five elected members on the basis of three Administration members and two Opposition members, and that the new Board be in place by 31^st October 2010.

(ii)               to approve recommendation (b);

(iii)             to approve recommendation (c), ensuring that AECC received the grant timeously, and instruct that AECC provide the Council’s Enterprise, Planning and Infrastructure Committee, or Council, with a full written detailed explanation and breakdown of the costs incurred with the aborted hotel development;

(iv)              to approve recommendation (d), noting that a report would be submitted to the Council’s Audit and Risk Committee on conclusion of the exercise; and

(v)                to approve recommendation (e).

Councillor John Stewart moved, seconded by Councillor Kevin Stewart:-

That the Council approve recommendation (f) as contained within the report.

Councillor Crockett moved as an amendment, seconded by Councillor Adam:-

That the Council do not approve recommendation (f) as contained within the report, and instruct officers to continue with their efforts to find an alternative mechanism to remove AECC’s debt burden.

On a division, there voted:-

For the motion  (24)  -  Lord Provost Peter Stephen; Depute Provost Dunbar; and Councillors Boulton, Clark, Corall, Cormack, Cormie, Donnelly, Farquharson, Greig, Kiddie, Leslie, McCaig, McDonald, May, Noble, Penny, Robertson, John Stewart, Kevin Stewart, Wendy Stuart, John West, Wisely and Yuill.

For the amendment  (9)  -  Councillors Adam, Allan, Collie, Cooney, Crockett, Graham, Hunter, Laing and Young.

Absent from the division  (8)  -  Councillors Cassie, Dean, Fletcher, Ironside, Malone, Reynolds, Jennifer Stewart and Kirsty West.

The Council further resolved:-

(i)                 to adopt the motion;

(ii)               to instruct that reports be submitted to the Enterprise, Planning and Infrastructure Committee and/or the Finance and Resources Committee each cycle; and

(iii)             to authorise the Council Leader to release a press statement on the outcome of the matter.

- PETER STEPHEN, Lord Provost.