Crisis jeopardises plan for nine new Aberdeen schools
icelandic banking collapse threatens council’s £120million project
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AN INTERNATIONAL property developer building nine new Aberdeen schools has not ruled out work grinding to a halt on the £120million project following the Icelandic banking collapse.
A huge questionmark was hanging over the scheme last night after it emerged the consortium running the city council’s flagship 3Rs school building programme is in serious financial trouble.
Sigfus Jonsson, director of developer Nysir hf, said he “didn’t know” what would happen to the project following the collapse of its chief backer, Landsbanki.
Almost 100 UK local authorities were caught up in the panic yesterday after it emerged that up to £1billion of public money could be at risk in Iceland.
Moray Council confirmed it had £2million deposited in Landsbanki. Perth and Kinross Council said it is trying to recoup a £1million investment in stricken bank Glitnir. The loan was due to be repaid in December with interest.
Aberdeen City Council has no money tied up in Iceland’s crisis-hit banks and has not yet spent any on the 3Rs project. But the NYOP consortium building the public-private partnership schools had been funded by Landsbanki.
Mr Jonsson, whose comp-any is a key consortium partner, said talks were being held to refinance the deal to build seven primaries and two academies for Aberdeen. Asked if work could be halted at school construction sites, he said: “I don’t know.
“Not at the moment, things are just carrying on a the moment, but I don’t know what’s going to happen later. I have not got any answers from Landsbanki. I’m still to meet them. I don’t know if the bank will carry on in Aber-deen. If they don’t we will just have to find another bank.”
Nysir hf is understood to be facing significant financial difficulties itself, but Mr Jonsson described the 3Rs scheme as “ring-fenced” and protected.
“We are already working to get other banks to step in, I don’t anticipate any problems refinancing – but it might take a little time.”
Aberdeen City Council issued a statement yesterday saying it was monitoring the situation very closely. Senior councillors and officials were privately confident the future of the construction project – under way for more than a year – is not in doubt.
Significant questions remain to be answered, however, with “wait and see” the mantra last night.
NYOP has signed a contract with the council to design, build and finance the schools, but the local authority does not start paying until they are operational.
Building work is ahead of schedule at Cults and Bank-head academies, as well as Airyhall, Braehead, Hazlehead, Heathryburn, Kaimhill, Manor Park and Mile End primaries – with completion of the entire project scheduled for September 2010.
Council resources management convener, Councillor Kevin Stewart, said: “The Landsbanki situation is an unfortunate example of how the current global banking crisis can affect us all.
“We see in the news what governments around the world are doing to bring stability to the financial sector – but at a local level the council is doing everything it can to minimise the impact.”
A senior official at the council, previously involved in managing the scheme, said the developments were “concerning”, but it would “not necessarily threaten” the project because of contractual arrangements in place.
Last night, the P&J also discovered that Iceland's biggest bank – Kaupthing – invested money on behalf of the city council until the end of last year. The bank's UK-regulated arm, Kaupthing Singer & Friedlander, was part of the council's “counterparty list" of banks and building societies which it used to invest surplus cash.
Kaupthing was trusted with anything up to £5million of the council's cash until it was removed from the list at the end of 2007.
Aberdeen Labour MP Frank Doran said he feared there may be a “jinx” on the city. “We have known for some time that Icelandic banks were in difficulties.
“This contract was signed in February. I would have expected a certain amount of diligence to be done to ensure the bank was sound.”
Aberdeen City Council is also trying to make budget cuts of £50million this year and faces making £20million more next year.
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