EU don’t need to know Calls for full inquiry over ‘unlawful state aid’ claim
New concerns raised as it is revealed Scottish ministers involved in trying to save two lifeline ferries and their builders did not notify EU about potential assistance
MINISTERS are under scrutiny over unlawful state aid after they failed to notify the European Union about any of the Scottish Government’s interventions in companies connected to Scotland’s ferry-building fiasco.
New calls have been made for a judgeled public inquiry as EU sources confirmed it was not notified of either its involvement in supporting Caledonian Maritime Assets Limited (CMAL), the Scottish Government-controlled firm that owns and procures CalMac’s ferries, or shipbuilding firm Ferguson Marine.
The development has prompted new concerns that ministers have been involved in unlawful state aid over its bid to save two lifeline ferries and its builders from the scrap heap – having previously been found guilty of illegal interventions involving Scottish airports.
Audit Scotland has expressed “frustration” to MSPs over a failure to provide the key information over why ministers decided to proceed to act as guarantor for the controversial £97 million order to Ferguson Marine after concerns were raised that there were no mandatory full refund guarantees from the shipbuilder should anything go wrong.
Police Scotland is understood to be considering a complaint lodged by former SNP deputy leader Jim Sillars which calls for a probe into “missing” documents over the affair raising questions about “misconduct in public office”.
It has been confirmed that ministers did not contact the EU about potential state aid when the Scottish Government stepped in to provide a £106m special incentive to ensure that a ferry contract went to Jim McColl-led Ferguson Marine three years previously – after it was unable to provide the guarantees. It resulted in taxpayers losing £80m when Ferguson Marine went into administration, as CMAL says the loans were eliminated.
The ferry owners would have expected to have been paid off over 25 years by CMAL using revenue from the lease of vessels like the fleet of state-controlled ferry operator CalMac and harbour access charges. In the seven years since the contract was awarded, the Ferguson’s yard has been nationalised by the Scottish Government after it fell into administration while the estimated delivery of lifeline vessels Glen Sannox and Hull 802 has been delayed by at least five years, along with an increase in costs to at least £250m.
‘No notification’
EU SOURCES have also confirmed that there was no notification of any intervention with Ferguson Marine, about the award of £45m loans or state intervention in nationalising the Inverclyde shipyard firm.
Under EU rules, member-state governments are required to notify the European Commission – which is in charge of treaty compliance – about proposed state aid moves.
The intent of state aid rules is to avoid financial assistance given by a government that favours a certain company or commercial group and has the potential to distort market competition.
Highlands and Islands MSP Edward Mountain, the former convener of the Rural Economy and Connectivity Committee, which branded the procurement of the two new ferries a “catastrophic failure”, called for a public inquiry, saying there were “big questions” over whether ministers were complying with state aid rules, adding that he was “not surprised the SNP Government continues to face allegations of corruption”.
The ministerial deal was set up to ensure the contract for two ferries was given to Ferguson Marine to reassure the ship owners, who had “severe misgivings” over the yard’s inability to provide financial guarantees, were not out of pocket if anything went wrong.
It came with a crucial pledge that they would not have to repay anything until after the vessels had been delivered. And they promised other public funding to cover other performance risks to ensure it did not lose out – and further money to meet any debts to ensure CMAL remained in existence.
It has been suggested that the financial support flouted EU Market Economy Operator Principle rules and is unlawful state aid – as the Scottish Government was favouring one yard by acting as guarantor – with a crippling cost to the taxpayer.
‘Bin’ Ferguson
BEFORE ministers stepped in in October 2015, CMAL chairman Erik Ostergaard told ministers that the best option was to “bin” Ferguson Marine – which had been chosen as the preferred bidder – and start the tender process from scratch on the basis of its initial contract requirements, which was to have full builders’ refund guarantees.
Some procurement experts have told The Herald on Sunday that the failure to go through the process again left CMAL open to legal action from those who sought the contract but lost out to Ferguson Marine. An internal Scottish Government memo sent to Derek Mackay, who was then Transport Minister, warned: “In addition to the financial risks, absence of a full refund guarantee in the final contract represent a considerable departure from the advertised contract terms and may rise significant procurement risks.
“In the case of a challenge, CMAL would robustly defend their position on the basis of the legal advice they have received and the steps they have taken to bring the final contract clauses into broad comparability with the tender specification.”
Before Ferguson Marine’s collapse and the subsequent state takeover, ministers issued two commercial loans worth £45m to the shipyard firm. Just last month, Finance Secretary Kate Forbes was still insisting that the £45m, delivered in two tranches in 2017 and 2018, was put up to “support the business with working capital and business diversification”.
The questions continue to mount up and I am not surprised that this SNP Government continues to face allegations of corruption
Then Finance Secretary, Mr Mackay used a similar line when telling the public about the 2018 £30m loan – that it was “to further diversify their business”.
But internal documents have shown that the real reason was that Ferguson’s was in financial trouble and at risk of falling into administration. A confidential memo about the “urgent” loan from Mary McAllan, director of economic development at the Scottish Government, to Mr Mackay said Ferguson Marine required the funding “immediately if severe cost-cutting measures and further significant delays to the CMAL order are to be avoided”. Without access to further finance, Ferguson Marine’s next planned step was to issue redundancy notices to the bulk of the core staff at the yard – around 230 from a total headcount of 280, she said. Administration was “a real risk”.
Her memo reveals the £30m due to be paid back in 10 years came with a “right to buy” if the company fell into insolvency.
The EU has refused to comment on the Ferguson Marine and CMAL case, but confirmed the Commission remains the competent authority for any state aid granted prior to the end of the transition period on December 31, 2020.
If a state aid investigation was launched and found proven, the Commission could ultimately demand the recovery of money.
The Competition and Markets Authority previously expressed concern about the “potential risks” of state control over the way ferries are operated, run and paid for.
‘Special incentive’
EDWARD Mountain said: “The SNP’s decision to waive the builders’ refund guarantee has proved extremely costly to the Scottish taxpayer. Around £80m has been lost from this decision alone and now there are big questions as to whether this arrangement met state aid rules. Would this special incentive have been offered to the other bidders for the ferry contracts? If not, it would then appear that there was not a level playing field in the tendering process.
“The questions continue to mount up and I am not surprised that this SNP Government continues to face allegations of corruption.”
A Scottish Government spokesman said: “The actions that the Scottish Government has taken have helped to secure jobs at the last remaining commercial shipbuilder on the Clyde. We are committed to completing the vessels as soon as possible and securing a future for the yard.
“The loans which Ferguson Marine received from the Scottish Government while in private ownership were state aid compliant and followed the rules for decision-making by ministers when considering investing public funds. Audit Scotland were notified of the loan facilities as the Government’s auditors and the expenditure was reported in the Government’s accounts.”