The Chamberlain News

Summer Report: Birmingham’s Crown Jewels

Artist’s impression: Resorts World Birmingham at the NEC, Genting UK – a key element of the Destination NEC vision. 

In the latest Summer Report, chief blogger Paul Dale inspects the state of Birmingham’s ‘Crown Jewels’ – and the progress of at least one set under the hammer.

For 38 years the leaders of Birmingham city council have resisted demands that they make a quick buck by selling the local authority’s prized assets – with the NEC Group at the top of a hypothetical wish-list pile for disposals.

It didn’t matter which political party controlled the city.

The Conservatives were, mostly, as opposed to “selling the crown jewels” as Labour.

Between 2004 and 2012 the Tory-Liberal Democrat coalition running the council came under pressure from some backbench councillors to sell the NEC and the city’s share in Birmingham Airport, but the then leader Mike Whitby resisted privatisation.

In fact, oddly enough, Whitby’s legacy to Birmingham will be an unexpected dose of muncipalisation in the form of a new £187 million civic library and building the first council houses since the 1980s.

The city council’s default position of not selling key assets changed a year ago when the impact of Chancellor George Osborne’s ‘austerity’ assault on local government became clear.

Faced by an £800 million shortfall on the revenue budget and a £1.1 billion equal pay bill to meet, Labour council leader Sir Albert Bore knew the time had come to put the NEC up for sale.

Chamberlain News understands that five private equity bidders are in the frame and that a deal will be concluded by the end of the year. A price tag of £300 million has been floated in the national media, and is not disputed locally.

NEC bosses confirmed as they announced year-end results last week that the sale was expected to be concluded by the end of 2014. Revenues were up by 1.7 per cent to £122.8 million in a year when the ICC did not host any of the party conferences, and the National Indoor Arena underwent a major refurbishment programme.

The NEC Group’s operating profit was £22.3 million. Profits for the exhibition business were up £3 million to £34.3 million, but profits for the Ticket Factory and Arenas fell by £1.7 million.

Paul Thandi, chief executive of the NEC Group, said: “The city council announced its decision to seek offers for the NEC Group in early March. We are well positioned to realise our true strategic potential under private ownership, while improving our contribution to the local and national economies.”

When he announced the sale earlier this year, Sir Albert was careful to state that the prime objective was to raise the private sector investment required to improve the National Exhibition Centre’s rather tired offer and turn the NEC Group into a “global brand” capable of building and running entertainment complexes in the Far East and emerging countries.

The new owners will be expected to provide the finance needed to complement the £150 million Resorts World Birmingham at the NEC leisure and entertainment complex from Genting UK which will provide a casino, new hotels and restaurants.

The purchaser must also agree to keep the NEC buildings for their current uses to “secure the profile of Birmingham and the West Midlands as a world class home of a broad array of live events”.

The council is being careful to sell only leases on the NEC – and the ICC and National Indoor Arena in Birmingham city centre – and will retain ownership of the land. This could be particularly important in the case of the National Exhibition Centre and adjoining land which is expected to soar in value once an HS2 interchange station is built nearby.

Sir Albert made it clear he believed local councils were no longer in the position of being able to afford the “investment and risk” required to run a major conferencing and entertainment centre.

He didn’t talk about Birmingham Airport, although the same principles might be thought to apply in times of financial austerity for councils. The question remains unanswered: is it sensible for the seven West Midlands councils to retain a 49 per cent ownership of the airport, or should they cash in and move on?

The airport’s masterplan for development up to 2030 envisages further expansion and raises the possibility of a second runway. It’s estimated that Birmingham Airport could handle 70 million passengers a year compared to about nine million now.

Clearly, the investment required to deliver such an ambitious plan could only come from the private sector. As things stand, two foreign pension funds own 48.25 per cent of the airport. It is debatable whether the Ontario Teachers’ Pension Plan and Victoria Funds Management Corporation would have the heart for the scale of investment required and, crucially, be prepared to face the risks attached to massively expanding an airport.

Rumours persist that Birmingham Airport is being lined up for disposal. Some senior members of staff have left recently, most notably John Morris, the public affairs director, and the suspicion is that costs are being reduced in preparation for a sale.

This is denied by Birmingham city council. A spokeswoman for Sir Albert Bore said the leader was “mystified” by a claim that the airport was up for sale…..which is almost a denial.