Elements of This Document Have Been Redacted to Protect Commercial Confidentiality

Elements of this document have been redacted to protect commercial confidentiality

LOCAL GROWTH FUND: DVTA SOUTHSIDE

SUMMARY OF APPRAISAL AND RECOMMENDATIONS

APPLICANT DETAILS
Lead Organisation: / Durham Tees Valley Airport Limited
Registered Address: / Peel Dome, Trafford Centre, Manchester, M17 8PL
Details of Any Joint Venture or Consortium Arrangements:
None
PROJECT DETAILS
Project Title / DTVA Southside
Project Location / Southside, Durham Tees Valley Airport

1. DTVA Southside is a consented aviation related industrial park within Durham Tees Valley Airport. The LGF project involves the construction of a 1,971 metre road to unlock access to the employment land.

1. The applicant advises that this will specifically allow existing DTVA partners, particularly SERCO, to expand their businesses.

1. DTVA Southside has the capacity for 175,000 sq m of new employment floorspace, potentially creating 2,660 indirect (created and safeguarded) jobs.

1. Access to the Airport site from the national road network is from the north side of the Airport. This gives access to the terminal building, as well as some other airport infrastructure and commercial and industrial installations. This is known as the Northside site.

1. There is also land to the south of the runway (Southside) which has been identified for airport related development. Access to Southside from Northside is currently only possible by entering the secure area forming part of the Airport and known as “Airside” which is a controlled area. This means that all traffic to Southside has to currently pass through Airside with the consequent issues of security clearance. Any current vehicular access to Southside from the south is not fit for commercial usage. The Airside route to Southside is via the north east end of the runway. This compromises the extent to which the Southside site can be used, for current and future uses, and the experience for users of its facilities. Intensification of use of Southside without a new road would require careful and costly management to ensure safety and security aspects are maintained.

1. In relation to the potential development at Southside, there is a planning permission dated 9th August 2007 which covers approximately 60 hectares of land for employment uses. DTVA is now applying for planning permission to construct an access road that will pass to the North East of the runway without entering Airside. The project includes works to address ‘pinch points’ on highways on Northside to give larger vehicles a route to the access road. The access road will improve the safety profile of the Airport, both by obviating the need to enter Airside with the inherent risk implications, and by improving access to all parts of the Airport for the fire safety crews which are stationed Northside with fire training facilities on Southside. It will also provide improved access to existing airport infrastructure south of the runway, including a radar tower that is used for air traffic control purposes, and will make it easier for security personnel to access all relevant parts of the airport.

1. The Southside project forms part of a response to a significant decline in passenger numbers over a number of years at DTVA from an annual average of some 750,000 from 2001 to 2007, to just 162,000 in 2012/13. This decline, resulting from the decision of airlines to withdraw services at DTVA, has led to significant commercial difficulties.

1. XXThe Southside project is a critical part of the Investment Plan. However, the scheme is not viable without funding support. Funding support for the delivery of essential access infrastructure will enable the site to be developed out, directly supporting the business model for DTVA.

1. Project Variations since original submission.

1. By February 2015 detailed design and costing work has been undertaken since the initial submission. XX. Reflecting updated market information in relation to the Southside scheme, the LGF requirement remains unchanged at £5 million. XX

XX

1. XX.

1. XX.

1. XX

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1. In considering this appraisal the Investment panel needs to be aware that indirect outputs beyond the 90,000 sqft first phase are not guaranteed and BCR calculations are based on the full scheme proceeding as hoped and includes all indirect benefits form anticipated build across the whole site.

HIGH LEVEL FUNDING SUMMARY (Full detail to be provided in spreadsheets)
Funding type / 2014/15 / 2015/16 / 2016/17 / Total / Status
LGF / 5,000,000 / 5,000,000 / XX
XX / X / XX / XX / XX / XX
XX / X / XX / XX / XX

*The 2016/17 allocation is still subject to Government confirmation and Peel is aware of this.

APPRAISAL SUMMARY
Case / Result / Comment
Strategic / Satisfactory /

1. Following submission of additional information and after consideration of all due diligence documents we consider the Strategic Case is satisfactorily made. The TVU Statement of Ambition states: “It is vital that links from our key assets at Teesport and Durham Tees Valley Airport to national and international hubs are maintained and built upon to support our global industries.” Clearly, this proposal supports this aspiration, not least in seeking to drive up demand from local businesses.

18. In respect of the Strategic Economic Plan (SEP), the scheme offers the prospect of contributing to TVU’s ambition to improve air transport (and other) infrastructure to enable economic growth. In addition, the project claims it will support the SEP’s aims to “develop and nurture an innovative culture and positive environment for business growth”, and to “create and retain wealth by establishing Tees Valley as a preferred location to live in, work and visit.”
Economic / Satisfactory / 19.Evidence of Need- there is a strong case for supporting this proposal based on its potential ability to make the airport more sustainable and offer local businesses enhanced freight (and passenger) facilities.
20. The options appraisal has been considered in a methodical and logical fashion and follows a reasonable process. The chosen option is to have a new access road XX This will enable the full delivery of Southside in support of the DTVA Investment Plan and TVUStrategicEconomic Plan objectives. Project development and due diligence work has demonstrated that this project is deliverable. This option also has the lowest risk of disrupting existing activity at the Airport.
21. Direct Outputs are higher than predicted.The primary direct output of the project is the delivery of 1,981 m of newly built link road. XX8,361 sqm (90,000 sqft) of development has also been agreed as a direct output and the 60 hectares unlocked on site.
22.Indirect Outputs - Once fully developed, it is estimated that the site will accommodate 2,596 jobs (gross FTE). Job outputs are therefore dependent upon the levels and speed of development on the land which is opened up by this infrastructure.XX
23.Due to uncertainty of demand the take up and hence pace of development is hard to predict so timing of outputs (both direct and indirect) may vary.
22. The overall scheme has an estimated Benefit Cost Ratio (BCR) of 2:1. However the BCR for the public sector cost of £5 million is estimated to be as high as 16:1. The BCR takes into account indirect outputs for the whole site which is perfectly acceptable, however the Investment Panel needs to understand that this assessment is on this basis.
Commercial / Satisfactory (with condition) / 23. It is accepted that development cannot take the abnormal costs of infrastructure.
24. Evidence of demand - general market commentary provided by an independent report gives some justification for the strategic site and reference is made to other low passenger number airports and their approach to diversifying. However, in the circumstances and in the context of where the projects sits in the development pipeline, we think it is unlikely that the evidence of demand can be firmed up and this will only truly become evident further into the process. There is therefore a speculative element around how much development the project will secure. Note that no letters of interest or support were received by existing clients of the airport.
25. ACTION:The Panel will need to consider the case for investment on the basis that it is accepted that there is a lack of definitive market demand for the site and the risks around the quantum of resultant development this will produce.
26. Further Discussions since February Deferment of Decision -Since Februarys Investment Panel negotiations have been ongoing to obtain greater certainty from DTVA Ltd/Peel Holdings. As highlighted in the project summary variations since original submission.
27. XX
28.XX
29.XX
30.ACTION: The Investment Panel are asked to consider whether the result of negotiations provides sufficient comfort around the investment.
Financial / Satisfactory (with condition) / 31. The build costs have been established as reasonable and the project costs included in the financial forecasts appear to have been scheduled in line with the available evidence.
32. DTVA has stated that board approval in principle has been secured in relation to match fundingXX
33. Profile of spend - the applicant has been advised that they must show their commitment to the project by sharing the construction costs throughout the project, rather than only contributing after the full £5m LGF funding has been defrayed. This principle has been agreed.
34. Therefore, based on the evidence presented, the following are proposed conditions:

• Evidence of final board approval in relation to match funding XXbefore draw down of LGF funds.
• Condition to be imposed for re-profiled funding to meet LGF annual allocations and DTVA match throughout the project and revised timescales.

35. XX
Management & Legal / Satisfactory (with condition) / 36. The applicant has not submitted a title reportXX This report must be issued XXcontemporaneously with completion of the funding agreement.
37. Initial site investigation works have been undertaken. More detailed investigation works will be needed to determine the form of construction and levels. Detailed investigations will be commenced upon the confirmation of funding support which will be be submitted to TVU upon completion and will form part of a condition.XX
38. Planning permission has previously been granted (9th August 2007) for the development of approximately 60 hectares of land for employment uses at Southside. Since the last appraisal a detailed planning application ref 15/1625/FUL was submitted on 2nd July 2105 in respect of the proposed access road and plot 1 development (which is within phase 1).
39. XX.
40. Track Recordis good and appropriate governance is in place for the project. Members of the DTVA team have an extensive track record of procuring and implementing road schemes XXand the FARRS link road project at Robin Hood Airport.
RECOMMENDATION
The project is recommended for approval subject to the conditions recommended by the Independent Appraiser. In addition it is recommended that an offer letter in advance of Funding Agreement and legal charge is issued to give applicant sufficient comfort to progress and stay within funding allocations.
Recommended / Recommended
(with conditions) / Defer/Reject
CONDITIONS
Pre-Conditions (to be satisfied before entering a Funding Agreement)

1. Evidence of final board approval XXin relation to match funding XX
2. Project cashflow to be resubmitted to reflect updated costs, revised timescales and LGF annual funding allocations.
3. XX
4. Title Report must be issued once acquisitions have been legally completed XX.Report must show no legal impediment to delivery of the scheme.
5. State Aid position to be issued as an opinion to Stockton BC at date of completion.

Essential Conditions (to be included in the Funding Agreement)

1. Detailed site investigations to be provided before drawdown of funding.
2. LGF funding of £5 million is maximum sum and limited to approved allocations for each year.
3. No draw down of funding until detailed planning consent is in place.
4. Applicant to meet revised milestones as follows:

Milestone / Date
Works tender issued / September 2015
Planning consent / November 2015
Contractor appointed / XX
XX / XX
Start on site / XX
Practical completion / March 2017
TVU LEAD APPRAISER:
PRINT NAME / Sarah Walker (Strategic Investment Planning Manager)
SIGNATURE /
DATE / 20.08.15
TO BE COMPLETED AFTER INVESTMENT PANEL:RECORD OF DECISION
CHAIR: / Neil Schneider, Chief Executive of Stockton Borough Council
DATE OF MEETING: / 25th August 2015
CONFLICTS OF INTEREST: / All LA representatives declared an interest
Alastair MacColl (Private Sector member chaired this agenda item)
DECISION: / Recommended for Investment with Conditions

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