Scottish Marine Recovery Fund: consultation

6. Funding and fee structure

6.1. Approach to funding

Subject to delegation of the functions to set and collect relevant fees by the Secretary of State, the Scottish MRF will operate on a not-for-profit basis. To ensure public money and resources are used properly and efficiently, it will aim to achieve a full cost recovery model at the earliest practicable opportunity.

The Scottish MRF will also be operated in a way that contributes to overall and ongoing budgetary and fiscal sustainability in Scotland, and which enables an effective framework of accountability and scrutiny to be maintained.

6.2. Fee components

The total cost to a Scottish MRF applicant will vary as it will depend on the amount and type of compensation required. Certain payments to the MRF will be non-refundable. The charges which will make up the total cost will include:

• cost of compensation
• adaptive management charge (see section 6.4)
• administrative costs

Any initial fee paid to reserve access to appropriate compensation (see below) would be deducted from these total costs.

Costs of specific compensatory measures are not currently available and are not being consulted on. An initial set of potential measures to be funded through the Scottish MRF is currently being considered as part of work on developing a Scottish Portfolio of Strategic Compensatory Measures. Indicative costs of these measures are expected to be developed by winter 2025/26.

It is anticipated that each compensatory measure included in the Scottish MRF will incorporate an adaptive management plan where appropriate (see section 6.4 below). The compensation assigned to the application by the Scottish MRF Operator will be based on the scale and nature of the adverse effect of the project and will determine the full cost to the applicant. Cost of the compensatory measure to an applicant will include the applicant’s share of the cost to deliver, maintain, monitor and, if necessary, decommission the compensatory measure.

Administrative costs will be calculated to cover the overheads of managing the Scottish MRF to ensure full cost recovery. We are considering whether this should include covering relevant costs of SNCBs for advising on the suitability of compensatory measures in the Scottish MRF.

The payment amount, any payment plan and any timeframes for payments are anticipated to form part of any agreements between applicants and the Scottish MRF Operator and must be agreed to and complied with by the applicant to allow for the discharging of environmental compensation conditions.

6.3. Payment

Following an EOI, if compensation is available, an initial fee to reserve access to appropriate compensation will be required. We are still considering how this fee should be set; for example, whether a flat charge should apply to all applicants or whether the fee should be proportionate to the scale of compensation requested, with greater compensation needs subject to a larger reservation fee. The initial reservation fee would be non-refundable but would count towards the total cost of discharging a compensation condition through the Scottish MRF.

The type of payment plan will be discussed between the Scottish MRF Operator and the applicant after the submission of the EOI and if suitable compensation is available.

In some instances, costs may be paid with annualised or other scheduled payments, in which case the contractual arrangements between the Scottish MRF Operator and the developer will stipulate obligations imposed on the developer for the fulfilment of payment conditions. In these circumstances, the developer and Scottish MRF Operator would agree to a schedule of instalment payments for an agreed period or for the lifetime of the project. The amount per instalment will be specified in the payment plan.

We are also considering enabling the review of payment plans, including periodic reviews at agreed points to enable adjustments in line with inflation and consideration of other relevant factors. These considerations will also be relevant to any fees paid in a one-off sum, particularly where there is a difference in timing between when the payment is made, and when delivery of the compensatory measure(s) begins. This will be critical to ensuring the Scottish MRF can operate on a full cost recovery basis.

Payment plans for each applicant will vary depending on the compensation required. Some compensation may be suited to a one-off payment, and some compensation may require ongoing costs, alongside regular monitoring (for example, predator reduction), which may make an agreed payment plan more appropriate.

For compensation for a project to be secured by an applicant, the applicant will be required to comply with the terms of their agreement with the Scottish MRF Operator for the lifetime of that agreement, including their obligation to make payments to the Scottish MRF.

6.4. Adaptive management

Adaptive management is the adjustment or replacement of a compensatory measure, if monitoring identifies that a current measure is wholly or partially not effective or not otherwise operating as intended, to ensure that compensation is still secured.

Appropriate monitoring of compensatory measures will be undertaken by the Scottish MRF Operator (or another body on their behalf) to ensure that intended environmental benefits are being realised. The type and frequency of monitoring will depend on the compensatory measure and may vary over the measure’s lifetime. If monitoring finds a measure is not functioning as intended, the Scottish MRF Operator will utilise the adaptive management plan for the measure, to ensure that the necessary environmental compensation required is delivered.

We propose to mirror the approach taken by the UK Government MRF, the adaptive management charge for the Scottish MRF will therefore be set at 30% of the total estimated cost of delivery, maintenance, monitoring and any decommissioning of the measure and will be applicable to all measures. If you have thoughts on an alternative approach, we would be happy to consider your views as part of the consultation.

The charge has been set at 30% to reflect inherent uncertainty in calculation costs and delivering measures over the long term, to ensure sufficient fund liquidity to meet all relevant fund obligations, and to comply with subsidy control regulations.

The Scottish MRF Operator will use this charge to fund adaptive management for compensatory measures. This may include:

• modification if the measure is not functioning as intended
• any adjustments needed to improve the measure’s efficacy, including if the measure has been delivered to specification but has failed to deliver the intended outcome
• agreeing a new measure where there is a reasonable guarantee that a new proposed measure will meet the required objectives

Should the applicant choose to vary their consent due to a need to revisit the environmental impact assessment or for any other reason, the adaptive management charge would not include adjustments to the quantity and type of compensation required.

The adaptive management charge will be non-refundable, and any unused funds from this charge will be redistributed across the Scottish MRF to meet other relevant costs.

As part of the adaptive management charge process, the following will also be agreed:

• the Scottish MRF Operator will be responsible for delivery of the compensation specified in the applicant’s agreement with the Scottish MRF Operator
• if monitoring data shows that a measure is not functioning as expected, the Scottish MRF Operator will be responsible for delivering adaptive management
• if a measure does not require adaptive management during its lifespan, the adaptive management charge paid will remain non-refundable

If a project delivering their own project-level compensation without using the Scottish MRF required an alternative measure as part of their adaptive management process, they could apply for use of the Scottish MRF to deliver this. If the measure they require is available via the Scottish Government’s portfolio of strategic compensatory measures, applicants would follow the same Scottish MRF application process. These applicants would still be subject to the adaptive management charge.

6.5. Surplus funds

While the Scottish MRF is intended to be not-for-profit and operate on a full cost recovery model, it is possible the Scottish MRF may accrue surplus funds - for example, if adaptive management is not required. If this is the case, any initial surplus of funds will act as an operating balance to meet operational cashflow needs.

As the Scottish MRF matures, the Scottish MRF Operator will determine an appropriate operating balance. If funds accumulate beyond this balance, this funding may be utilised for the identification and further development of new and additional compensatory measures.