Ministers stand to lose up to £52.4m of taxpayers money after refusing to carry on backing state-owned renewables manufacturer Burntisland Fabrication (BiFab) which is now believed to be on the brink of financial collapse.
The Herald on Sunday can reveal that ministers signed off on what was a secret £30m guarantee to support Bifab last year before doing a U-turn after the failure of an important contract, leaving fears that the company faces liquidation.
It can be revealed that ministers decided to do a U-turn after new legal advice felt that providing key support for the ailing company at the centre of a wind farm jobs row would be seen as illegal state aid under European Union regulations.
Scottish Government sources revealed that a re-evaluation came after BiFab in September failed to win any work on Scotland’s largest offshore wind farm, the multi-billion pound Seagreen project, located just a few miles from its yards in Burntisland and Methil in Fife.
A Chinese yard will fabricate 84 of the 114 turbine jackets for the project, which will then be shipped to the North Sea.
The yards are currently operating on a skeleton 30 staff – with zero contracts in place at present but at its height employed hundreds.
New details of the row over the firm which also has a base on the Isle of Lewis and was seen as key part of the future of Scotland’s wind farm revolution, has been seen as a change of approach to that which saw minsters carry out a calculated state takeover of other prominent Scottish businesses, the shipbuilders Ferguson Marine and Prestwick Airport.
If the company collapses, it has emerged the public purse could lose up to £52.4m which has been pumped into the company.
The Scottish Government, in a bid to save it from closure in 2017, provided a £37.4m bailout and converted it to its 32.4% equity stake in the company. According to official 2018/19 accounts, that stake is worth just £2m because of expected losses. It will be worthless if the company goes into liquidation.
A loan facility of £15 million was also provided to support working capital.
The Herald understands from company sources that the ministers’ intial support came by way of a commitment to effectively underwrite a contract to have a part in the the £2 billion Neart Na Gaoithe (NnG) offshore wind farm project in the Firth of Forth to the tune of £30m.
The support came in November, after then finance secretary Derek Mackay made a secret representation to the Scottish Government’s finance committee.
The meeting’s minutes which have also not been made public, show only that Mr MacKay talked about a “proposed contingent liability”. And in the space of an hour, the MSPs passed it.
Contingent liabilities are debts that may occur depending on the outcome of an uncertain future event.
The contract proposed a minimum of eight of 54 steel foundation jackets which anchor the turbines to the seabed would be built by Bifab with the rest being constructed in south east Asia.
But on Wednesday, the Scottish Government which owns a third of Bifab, decided to decline the “assurances” to BiFab to support the contract signed off on last year.
BiFab then said that made the award of what was a loss-making contract “very challenging”.
Roz Foyer, general secretary of the Scottish Trades Union Congress said the the public needed to know “when the Scottish Government took that view that Bi-Fab would go into liquidation and we want to see the legal advice on which that view is based”.
She said: “Despite the Scottish Government’s protestations regarding State Aid, few observers of industry will doubt that governments and competitor companies in Europe would be standing up for their own supply chain and their own workers.”
Scottish Government sources have revealed that the decision to underwrite the potential NNG contract last year was aimed at protecting its investment in BiFab as a major shareholder.
But it was felt the financial support would be seen as state aid now, after the failure to get the Seagreen contract because the company would not have been seen as an investable proposition.
Public assistance becomes state aid under European Union rules if it provides an economic advantage to commercial undertakings and that advantage might affect international trade and competition.
The Scottish Government says that under the rules in can only financially support BiFab, or any other commercial enterprise, “in so far as a commercial investor would do the same”.
The Scottish Government is not represented on the board of BiFab, which will now have to decide what the future holds.
BiFab, which once employed around 1,400 workers was rescued from the brink of administration by the Scottish Government with the £37.4m loan, but then was purchased by Canadian firm DF Barnes, although hundreds of jobs were shed.
Auditors Paterson Boyd & Co in the latest annual accounts for Burntisland Fabrications Limited for 2018, highlighted a material uncertainty over its future connected to the award of new contracts.
The opinion, signed of at the end of last year, highlighted a net annual loss of £4.6m and warned that a “material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern.”
The accounts revealed that the directors acknowledged that the ability of the company to continue as a going concern… is “dependent on continued support from its shareholders, and the successful award of new contracts.”
“Our conclusions are based on the audit evidence up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern,” the auditors said.
The SNP administration has come in for a series of criticism for its interventions in taking over some private sector enterprises.
Completion bonds were at the centre of the controversial nationalisation of Ferguson Marine, the Scottish shipbuilders at the centre of nation’s ferry building fiasco – with two lifeline ferries running up to five years late.
In another secretly negotiated deal which formed the pathway to a state takeover, performance bonds that acted as an ‘insurance’ against the company going under and not being able to complete two lifeline ferries were waived.
Those performance bonds to ensure the delivery of the ferries were provided by a subsidiary of Texas-based insurance firm Toko Marine HCC called HCCI and ensured the delivery of the ferries.
But in return the company had a hold over the assets of Ferguson, including the shipyard and equipment.
The bonds are common business pledges to pay a sum if one party fails to meet certain obligations to another, such as failing to fulfil the terms of a contract and usually provides payment protection to subcontractors and suppliers.
Ministers agreed a deal to wipe out the bond which ensured £25m in default payments over the collapse of Ferguson Marine last year, ensuring that HCCI could not stand in the way of its takeover of the company.
In June, 2018, after ministers had provided a £30m loan to Ferguson Marine, it was noted the company’s security which linked to the bond ranked ahead of ministers as creditors if the FMEL fell into administration.
An agreement was reached that involved foregoing the bond worth £24.5m and in its place HCCI was handed over an undisclosed sum ensuring Scottish ministers could control the business.
In November 2013, the Scottish Government purchased Prestwick Airport with the stated aim of protecting jobs and safeguarding what it considered to be a strategic infrastructure asset.
Debts totalling £39.9m as a result of a bailout remain outstanding.
Peter Welsh, head of campaigns with GMB Scotland union, which with Unite have been fighting for the future of the company said: “The outlook looks grim.
“I would be asking Scottish Government if they are willing to let BiFab go to the wall or are you dusting down an intervention plan.
“But it looks like a sea change from the economic approach they [ministers] took with Prestwick Airport and Ferguson Marine.”
The troubles surrounding BiFab are set against a Scottish Government report in 2010 stating that the offshore wind sector alone offered the potential for 28,000 direct jobs and a further 20,000 jobs in related industries, as well as £7.1bn investment in Scotland by 2020.
In a continuing row over Scots renewable jobs going abroad, the Herald revealed in January that Paris-based GE Renewable Energy, a division of the Boston-based multinational General Electric, confirmed it had been awarded a major NnG project to oversee the design, supply, construction and commissioning of onshore and offshore wind substations.
And it was working in a “consortium arrangement” with two Dutch-based companies platform construction experts HSM Offshore BV and engineering company IV-One on the offshore wind farm project which is now being jointly run by French state energy giant EDF and state owned Irish energy company ESB.
In November, the Herald revealed Scotland had already missed out on hundreds of millions of pounds of work in the creation of the wind farm off the Fife coast, as unions remained furious at the way the NnG project was being handled.
It emerged that Scotland had lost other important NnG project work, worth hundreds of millions of pounds to England, Germany, Finland and France.
BiFab had no further comment above a statement it release on Wednesday saying: “BiFab’s board of directors is now considering the path forward for the company.”
A Scottish Government spokesman said: “As has always been the case, the Scottish Government does not take management and operational decisions at BiFab, therefore matters of contract negotiation are for the BiFab board of directors to consider in the first instance.
“Once the board determine the terms of the contract, including whether or not they are prepared to provide an assurance package. If asked, it is at that point the Scottish Government would evaluate whether to financially support BiFab, but it would need to do so in the same way a commercial investor would in order for it to be state aid compliant.
“In considering the actual provision of a guarantee, it is appropriate and necessary to consider the prospects and performance of a company together with their subsequent performance, notably at the time when the relevant contract is to be signed, on the same basis as any commercial investor would. The pipeline of future trading and work has been adversely impacted by the decision of SSE not to award work to BiFab for the Seagreen offshore windfarm.
“Without majority shareholder investment in the company we have exhausted the options for what financial support we can provide legally. So this is a legal compliance issue and not an issue of financial commitment on the part of the Scottish Government.”
“We will continue to do everything possible to support the business while recognising the need for us to remain in line with State Aid regulations.”
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