Chief Pleas is staging an extraordinary meeting on Wednesday 8 April to decide whether to accept the offer of a loan of up to £1.5m. loan from Guernsey to fund the compulsory purchase of the island’s electricity company.
Proposal documents revealed that with an assumed interest rate of 6.2%, this could end up costing the island more than £1.1m. in interest payments over 20 years.
A spokesman for the island’s Policy & Finance Committee said that the Guernsey Press article had focused on the absolute worst case example of loan interest repayments.
‘The loan has always been intended to be paid for solely from electricity sales and even in a worst-case interest rate scenario, this would be comfortably affordable based on forecasts set out in the public documents,’ it said.
‘Surplus from electricity sales can also be used wherever possible to make early repayments, further bringing down the cost of borrowing. For example, if £1m. is drawn down and forecast surplus based on the current price of electricity is put towards early repayments, then predicted interest falls to a total of £156,000, with the loan being paid off in less than six years.’
He added that a loan from Guernsey represented the cheapest and most dependable option to complete the initial purchase of Sark Electricity and fund urgent remedial work on the network.
‘A commercial loan would be significantly more expensive, and in practice it is highly unlikely that Sark could secure one at all, given the absence of assets that a lender would require as collateral,’ he added.
The option of raising funds through a community or public bond had previously been discussed within Chief Pleas, and this remains under consideration and could be pursued once the compulsory purchase had been completed.
‘At this stage, it is therefore considered that a government-to-government loan represents the simplest and most reliable mechanism to secure funding for the initial phase of the project, removing uncertainty while the compulsory purchase process is concluded.
‘Following the initial acquisition and essential “make safe” works, there will be opportunities to re-finance and raise additional funding to enable a full overhaul of Sark’s electricity infrastructure, ensuring it is more resilient, sustainable and affordable for future generations.’
Chief Pleas said that conseillers would be given the chance to examine the document but not to remove it to seek external advice, which it said was standard practice with sensitive, confidential documents of this type.
Conseiller Frank Makepeace, who raised concerns, said he had now complained to the island’s newly formed Scrutiny Committee about the arrangements
The spokesman for P&F said the loan agreement was essentially the same as those issued to Guernsey States-owned bodies and for this reason it has been requested that the document remained confidential. Conseillers would be able to view the document as many times as they would like, and would not be restricted to office hours.
‘If Sark is to be taken seriously as a partner, now and in the future then we must do our best to respect these requests,’ he said.
‘The agreement also contains a confidentiality clause which restricts how the material can be shared.
‘This will also ensure that any questions can be raised and answered in advance, enabling an informed and constructive debate when it comes before the extraordinary meeting.
‘In light of the repeated and extremely disappointing leaking of confidential information across a number of subjects in recent years, and given the specific request from the States of Guernsey regarding the handling of this agreement, we are simply left with no other option but to put safeguards in place to ensure that conseillers do not distribute or reproduce this document.’
Guernsey’s Policy & Resources Committee said it was satisfied that the terms of the loan, including the interest rate, represented a fair and proportionate arrangement for both Sark and Guernsey.
‘The loan facility will support Sark’s government in securing a safe and reliable electricity supply for Sark but without cost to the Guernsey taxpayer which is a fundamental principle for the committee in making this loan available,’ said P&R vice-president Deputy Gavin St Pier.
‘Ultimately it is for Chief Pleas to decide on the affordability of the loan. The States’ resolution approving the loan offer explicitly requires that impot duties – collected by the States of Guernsey on Sark’s behalf – act as a security guarantee, ensuring repayment of the loan to the lender in the event of non‑payment by Sark.
‘This means the loan is effectively de‑risked for the States of Guernsey and its taxpayers while still enabling Sark to take forward the essential acquisition of the electricity generation and grid as critical national infrastructure.’