Sturgeon, the Indian steel magnate and an astonishing £500m gamble
Think the £250m ferries scandal stinks? Now read on and ask yourself: Why IS the SNP so reckless with taxpayers’ money?
WHEN First Minister Nicola Sturgeon swept into Lochaber to announce a deal to save the troubled aluminium smelter in 2016, the glowering presence of Ben Nevis merely added extra drama to what she called a ‘historic day’.
In hindsight, Britain’s highest mountain, whose steepling north face has long tempted risk-takers, may stand as a fitting backdrop to the latest business debacle threatening to engulf her Government.
Little more than five years after smoothing the way for controversial metals magnate Sanjeev Gupta to purchase the Lochaber plant for £330million, ministers are having to fend off attacks that they exposed taxpayers to millions of pounds of risk over the guarantees they put in place to seal the contract.
Critics last week accused them of playing ‘roulette’ with public finances and fear that the deal could yet prove more costly than other fiscal disasters, including Prestwick Airport, BiFab and Ferguson Marine.
It was always known the Scottish Government had dug deep to shore up the future of the UK’s last remaining smelter and its 160 jobs, but the staggering extent of that support only recently became clear.
Even more worrying are reports that ministers were warned they might be in breach of state aid rules by agreeing to the guarantees. If true, it would be the second time they faced claims of ignoring advice about state aid regulations following the ferries fiasco.
The Scottish Government has been under fire over Lochaber ever since it was finally forced to reveal last November, after a near two-year battle to keep the figure secret, that the total gross taxpayer guarantees provided to Mr Gupta to facilitate the purchase was a staggering £586million.
Back in 2016, Mr Gupta was in the early stages of an aggressive buying spree of steel and aluminium assets that allowed him to build up a £14.3billion empire spanning from Fort William to Australia.
In the process, the 50-year-old ‘saviour of steel’ dazzled governments and communities with visions of reviving and decarbonising depressed industries whose emotional and political value often outweighed their raw economic contribution.
Mr Gupta suggested he would ‘progressively expand’ metal manufacturing and downstream engineering at Lochaber, with an alloy wheel manufacturing plant in the pipeline, eventually bringing 1,000 direct jobs and 1,000 indirect jobs to the Highlands and adding around £1billion to the local economy over the next decade.
In an area where alternative employment prospects have always proved bleak, such honeyed words were a very welcome balm.
And so, the Scottish Government plunged in with its guarantee of more than half a billion pounds – an eyebrow-raising sum at a time when public finances were under huge pressure – to ensure Mr Gupta’s GFG Alliance group could buy the smelter, as well as two hydropower plants at Fort William and Kinlochleven, from Rio Tinto.
The Government had history with Mr Gupta, of course, having helped with loans to save steel plants at Dalzell and Clydebridge in Lanarkshire. Ministers doubtless reasoned that stepping in to protect rural jobs while establishing a sustainable metals production sector in Scotland would prove a vote winner.
But the proposals for the alloy wheel production line have long since been shelved, and despite Mr Gupta’s pledges on jobs, official figures last year showed fewer than 50 extra staff had been hired.
The poor return on jobs was only part of the saga, however, as the hugely complex deal which brought about the sale of the smelter fell under intense scrutiny following the sudden collapse in March last year of GFG Alliance’s main funder, the now-infamous finance company Greensill Capital. Mr Gupta’s entanglement with the charming Australian financier Lex Greensill and his eponymous supply chain finance firm has left GFG Alliance, which has thousands of staff in the UK, dangerously exposed and scrambling for new finance to prop up its empire.
Questions have been mounting over the precarious and opaque financial structure upon which its businesses have been built.
Former prime minister David Cameron was dragged into a row over lobbying for Greensill, while matters came to a head last year when the Serious Fraud Office launched an investigation into suspected fraud and money laundering by GFG Alliance, which denies any wrongdoing.
Amid the gradual unravelling of Mr Gupta’s business dealings, the mood in Scotland darkened this week when SFO investigators targeted premises linked to the tycoon here and south of the Border to seize documents and interview staff.
The SFO’s interest in GFGowned Liberty Steel has only served to reignite concerns over the Scottish Government’s prudence in so warmly embracing the company.
It is clear the Government had sufficient reservations about the guarantee that it sought external advice. It spent around £200,000 to have Deloitte scrutinise the arrangement, a year after it enlisted another Big Four accountancy firm, EY, to carry out due diligence on the deal.
The agreement saw the Scottish Government guarantee 25 years of power purchases by Mr Gupta’s
‘Matters came to a head last year when the Serious Fraud Office launched an investigation’
company from another business owned by his father. The deal allowed Greensill to convert the guarantee into nearly £300million of debt with a credit rating equivalent to UK sovereign bonds which were then sold on to fund the purchase of the smelter.
Newspaper reports, however, last week disclosed that advice from EY cautioned the deal may have breached state aid rules.
In its report, EY addresses the state aid test, warning that GFG’s profitability forecasts ‘are not supported by a robust business plan and there are risks to achieving the forecasts’.
A source close to the initial transaction between the Scottish Government and GFG told The Scotsman that advice was ignored by ministers. The source said: ‘The Scottish Government were advised the guarantee was likely in breach of state aid rules, which could carry serious consequences for both the Scottish Government and GFG, and that they should proceed with absolute caution, if at all, given numerous concerns surrounding GFG and the Lochaber business plan.’
The Scottish Government insists that it holds a ‘comprehensive suite of securities in respect of the Lochaber guarantee’ which would ‘more than cover the cost of the guarantee’ if it were to be called on.
But, in its report, EY calculated the value of the security in 2016 as £162million – including £148million linked to the hydro station and £14million from land assets. The smelter itself is not given a value as part of the security.
Although the metal it produces is sought after in a rising metals market, its relatively small output means it is under constant threat from giants in China and Russia. Its trump card has always been the hydropower stations that produce cheap energy on its doorstep.
The EY report notes, however, that neither power station is currently linked to the National Grid, meaning if the smelter business collapses, the clean energy they generate would be unusable but must be paid for until 2041.
Scottish Conservative finance spokesman Liz Smith said: ‘The saga over the Lochaber smelter is becoming murkier and murkier by the day.
‘Not only has this deal potentially broken state aid rules, but the Scottish taxpayer could end up footing a £586million bill for a smelter that was valued at nothing. It seems that – like with Ferguson Marine – the SNP Government has again proceeded with a dubious deal against explicit advice.
‘Given that only 50 of the 2,000 promised jobs at the smelter have materialised, Scots will be outraged that such a staggering amount of public money has been put up to guarantee a completely unprofitable business.’
The EY report was not the only warning sign. Even when it was approved by Holyrood’s finance and constitution committee, misgivings were expressed. At a 2017 meeting between Miss Sturgeon and Fergus Ewing, then cabinet secretary for the rural economy, parliamentary support for the deal was characterised as a ‘close run’ thing. Since then, a lack of promised investment at Lochaber has caused dismay in a community whose fortunes have been intrinsically linked with the smelter since it opened in 1929. Known locally as ‘the factory’, it has provided a lifeline for generations of the same families, many of whom still occupy homes built almost a century ago to house the first workers. But they were dealt a major blow when a key part of future expansion plans, the construction of an alloy wheels factory which, it was hoped, would sell up to 47 per cent of the UK’s market demand, was ditched by Liberty in late 2020 owing to what the company described as a ‘significant decline’ in car manufacturing. It was replaced with plans for a £94million aluminium recycling facility, which received planning permission last year, but is only expected to provide around 70 new jobs. Work has yet to start on building even this scaled-down ambition. Scottish Liberal Democrat economy spokesman Willie Rennie accused ministers of ‘playing roulette with taxpayers’ money’, adding: ‘The Scottish Government and their business partners have found themselves mired in murky business. It’s time for ministers to stop sweeping things under the carpet and see what can be learned from the SFO. ‘We should all hope that at the end of this saga that it is not taxpayers and workers in Lochaber who pay the price.’ In July last year, more questions were raised about the Gupta deal after a rival who was also bidding to take control of the smelter in 2016 revealed he had been prepared to buy it without public support. Bjarni Einarsson, chairman of the Iceland Energy Group, told the Mail he was never made aware financial help was available from the Scottish Government. Ministers disputed this, saying they had been prepared to offer funding to any successful bidder.
The Mail also detailed last year how Miss Sturgeon was heavily involved in ‘secret talks’ with Mr Gupta on two occasions before the deal was signed, on August 24 and September 28, 2016, and then again when she attended the event to mark the handover of the site to GFG on December 19, 2016.
Although she disclosed the meetings in her official record of ministerial engagements, Miss Sturgeon did not publicly speak about the agreement they discussed.
Meanwhile, it emerged last year that Finance Secretary Kate Forbes had accepted a £600 rugby ticket from Mr Gupta at a time when he was lobbying for more state support following his purchase of Lochaber and a hunting estate in her Skye, Lochaber and Badenoch constituency.
According to an entry in Holyrood’s register of interests, Miss Forbes, then parliamentary liaison officer to the finance secretary, was a guest at Murrayfield in 2018 of Jahama Highland Estates, bought by GFG as part of the deal to buy the smelter. Formerly known as the Alcan Estate after a previous owner, it is said to have ‘the finest deer stalking ground in Great Britain’.
An SNP spokesman said Miss Forbes had attended the match at a time when the estate was the subject of ‘interest to the local community who wanted to pursue a community buyout’.
Critics merely point to a pattern of behaviour before the deal was signed which they believe demands answers. Scottish Labour’s finance spokesman Daniel Johnson said: ‘This is only the latest development concerning the SNP Government’s dodgy deal with Gupta’s Liberty Steel Group.
‘This ill-advised deal has jeopardised public finances in Scotland and it is deeply worrying to hear
‘This saga is becoming murkier by the day’ ‘Playing roulette with taxpayers’ money’
that the SNP may have ignored state aid rules. It’s all too clear that this Nationalist administration cannot be trusted with the finances of Scotland.’
The Scottish Government said it was unable to comment on a live investigation by the SFO. A spokesman said: ‘Our priority is to support Scotland’s strategically important steel and aluminium sectors and the highly skilled jobs they provide, while delivering public value.’
It pointed out ‘no call’ has yet been made on the guarantee, adding: ‘No debt is owed to the Government under the Lochaber guarantee, all guarantee fees are up to date and we hold a comprehensive suite of securities in respect of the Lochaber guarantee.
‘If the guarantee were to be called on, the assets secured to the Scottish Government would more than cover the cost of the guarantee. The Lochaber guarantee is compliant with EU state aid rules.’
With the SFO still investigating, it may ultimately be for others to decide what rules were broken.
And while risk-taking on Ben Nevis goes with the territory, it is better left to mountaineers than Government ministers.