Cost of new Marine Lake Events Centre in Southport revealed – and where funding is coming from

How the new £73million Marine Lake Events Centre and Light Fantastic in Southport will be funded has been revealed, as the Final Business Case is today due to be submitted. 

Sefton Council’s Cabinet is meeting this morning to endorse the strategy, which will be put forward to the Government, and will include a proposal for nearly £20million in prudential borrowing to part-fund the substantial project. 

The MLEC would replace the former Southport Theatre and Convention Centre which closed in March 2020 and has been deemed unfit for purpose due to a catalogue of building defects. 

A total of £33.3million has already been secured through Southport Town Deal funding from the Government. 

The Liverpool City Region Combined Authority says it supports the principle of allocating up to £20m to the new Events Centre, from which the first £2.3m has been released to support pre-development work. 

Sefton Council continues to pursue other avenues of grant funding for the new facility, through bodies such as Arts Council England. 

The operator of the new centre will also be required to pay the council an agreed amount of money each year, while a further annual subsidy will be required each year from the local authority.

The new facility is forecast to attract 515,000 additional visitors every year, creating 288 new jobs and creating nearly 60,000 overnight stays from conferences and events.

In his report to councillors, Sefton Council Executive Director (Place) Stephen Watson said: “The financial model is based upon securing an operator who will pay the Council an agreed annual sum to run the centre for a minimum of 25 years. 

“This legal agreement between the council and the operator is a key factor in the business case and the financial risk that the council needs to consider. 

“Under the business case, if the council is to borrow £19.7m, an annual subsidy will need to be provided and this will need to be built into future Medium Term Financial Plans (MTFP). The size of any subsidy, net of operator income, will be determined as the operator procurement is finalised and will be reported in a future Cabinet (due September 2022) and council report. 

An artist’s impression of the new Marine Lake Events Centre in Southport

“This final position will be determined by the capital funding available to the council following negotiations with grant providers, the final negotiated position with a preferred operator that takes account of the length, value and nature of the lease, and initial upfront costs of operations. 

“In developing the business case, it is an assumption that under the lease agreement the basis for the annual payment is legally binding. The council’s preferred position is that such an agreement is backed by a parent company guarantee or some other form of guarantee that protects the council’s position thus minimising the risk of default. 

“The final detail of this will only be known when a preferred operator is selected. At that stage, a full risk analysis will be undertaken and reported to members for consideration. 

“The modelling of the lease agreement will have both a fixed and variable element according to the business case with the fixed element being inflation linked. Therefore, if a loss materialises in any given year or profit exceeds the estimates in the business plan then this would be shared by the operator and the council and will add to the base position reported in the business case. 

“One of the key risks to the council over the term of the agreement is if the operator chooses not to continue within the centre and wishes the lease agreement to terminate or if the operator fails to continue as a going concern. The lease agreement should not permit such termination. “However, in any such a scenario the council would revert to the parent company guarantee or other form of guarantee as per the agreement for security of ongoing receipt. In the event that the guarantee cannot be exercised then an alternative operator would need to be sought and the business case and model changed. This would inevitably change the financial implications for the council detailed within this business case and would require further Cabinet and council approval due to the significance and materiality.” 

The business case proposal is for a £73million capital build.

In terms of funding £33.3m is available to the council from the Southport Town Deal and there are ongoing negotiations with the Liverpool City Region Combined Authority (CA) with a view to a further £20m being received – discussions are ongoing to seek additional gap funding from other public sources. 

Once the CA funding above is secured there would be a funding gap of £19.7m on the overall capital cost of the centre and this is the sum that the council at present would need to support. Based on a 40 year annuity loan from the Public Works Loan Board at 3.41% this would result in an annual repayment sum of £0.91m. 

An artist’s impression of the new Water and Light Show on Marine Lake in Southport

One concern over the funding of the scheme is through growing inflation. 

Stephen Watson wrote: “In considering the capital cost within this report at the current time, as has been reported extensively nationally, the most significant cost risk is in relation to inflation.

“Based on advice from the council’s professional advisors, within the current cost estimate is contractor price inflation with 8.1% (£3.74m) built into the cost estimate and a further 5.1% (£2.78m) through to construction. This is based on industry metrics (Bank of England) but this will need updating as the work continues on the revisions to the cost estimate and funding sources. 

“In addition, provision has also been made for inflation that will have materialised from recent global events of 4% (£2.18m). These assumptions have been built into the current business case. 

“Consideration and management of these issues which are outside the council’s control is critical as if there are cost increases above this level, this will be reported for Cabinet consideration through the ongoing robust project reporting and scrutiny, and discussions will need to be had with central government and / or the CA as to whether they are prepared to fund any increases.”

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