THE SLOW-MOTION collapse of the SNP’s aluminium deal at Lochaber and its steel deals at Clydebank and Dalzell are now well underway. When Sanjeev Gupta showed interest in buying the plants in 2016 he was showered with taxpayer support by the SNP Government. The SNP never stopped to think whether it was all too good to be true.
In 2013, with the support of financial services company Greensill Capital, Gupta began to sweep up struggling mining and aluminium businesses from the UK to Australia, promising to rejuvenate them and adopt green practices fit for a climate-conscious world. Take a closer look at exactly what GFG bought, and you see that purchases have been made in areas in which politicians are desperate to save jobs – and are crucially prepared to provide state subsidy to kick the can further down the road.
Scotland’s SNP Government proved to be prime suckers. An indiscreet Gupta was reported gleefully recounting tales of his dealings with the Scottish Government at a London dinner. “It was basically a case of ‘how much do you want’ and ‘are you sure that’s enough? he said.”
But now Mr. Gupta’s empire is disintegrating. Its primary financier, Greensill Capital, has gone bust owing billions. The Gupta conglomarate owes some £5 billion to Greensill and has defaulted on its payments. A court filing revealed that Gupta’s group had told Greensill in February that it would be insolvent without its funding.
Greensill had first been stripped by the British Business Bank of a government guarantee on loans to the Gupta empire, because it had breached the terms of the Coronavirus Large Business Interruption Loan Scheme. It turns out that companies in Gupta’s GFG Empire and others with links to him milked the scheme for £400m, eight times the amount allowed.
In addition Gupta’s Wyelands Bank, established by Gupta in 2016, has effectively been shut down by regulators, closing off another source of his cash. In an extremely rare move the Bank of England’s Prudential Regulation Authority forced Wyelands, to hand back all deposits to savers.
Back in 2016 the SNP lent Gupta £7m to buy the two steel plants at Clydebank and Dalzell. Amazingly, the loan has never been repaid, with the Scottish taxpayer still being on the hook.
Another of the Gupta Group’s purchases in 2016 was the aluminium smelter in Fort William, Lochaber – the only one of its kind in the UK – along with its adjacent power plant in 2016. To enable this deal to occur the SNP Government provided a guarantee worth around £575 million. It is a 25-year guarantee of 80 per cent of the value of a power supply contract between the smelter and the power plant. Given that the aluminium smelter employs around 100 people the guarantee equates toover £5 million behind every job. In 2019 Margaret Hodge MP, former Labour head of the UK’s Public Accounts Committee, pointed out that the large financial risk that taxpayers were forced to take to safeguard such a small number of jobs was “bonkers.”
The SNP accepted Mr Gupta’s promises that he would build a new GFG-owned alloy wheel factory beside the aluminium smelter that would provide 2,000 jobs. Needless to say, that factory is a fiction that is entirely unbuilt. The gullible Nicola Sturgeon stated on the sale of the smelter to Gupta, “We look forward to hundreds of new jobs being created in the coming years. Today is the start of an exciting new chapter in Scotland’s manufacturing story and the Scottish Government and its agencies will keep working with Sanjeev Gupta and the GFG Alliance to help them realise their enterprising vision for Lochaber.”
Critically the SNP failed to extract any guarantees from Mr. Gupta that he would actually build the factory. Instead Gupta used the Scottish Government guarantee to sell hundreds of millions of pounds of bonds, via the now bankrupt finance firm Greensill, to Swiss fund manager GAM. Were Gupta’s firm to default and the Scottish Government guarantee to be called in, the losses would come out of the UK government-funded Scottish capital budget – used primarily to build hospitals and schools.
As security, GFG offered the smelter and the power plant to the SNP – if the grand project fails, then the government and the taxpayer will have to run and fund this loss-making unit. Together the combined debt of the smelter and the power plant is over seven times their operating profit according to Reuters’ analysis. This means that the units have a “high credit risk” rating – giving warning that there is a higher chance of loss for bond holders.
However, in November 2020 Gupta sold the Kinlochleven power station to infrastructure investor Equitix for a rumoured £150m. Councillor Andrew Baxter, who chairs the Highland Council’s Lochaber Area Committee, expressed severe disquiet about the Guptas, saying “We have heard many promises about how their ownership would transform the future of the factory and the Fort William area. We are still waiting to see any action. Now we hear that they are quietly disposing of valuable assets, which the taxpayer helped to purchase in the first place with a Scottish Government financial guarantee. I am amazed that there hasn’t been any form of public parliamentary scrutiny of their commercial behaviour and the financial agreements with government. It’s about time a spotlight is shone on them by our MSPs.”
It seems clear that with the sale of the bonds and the power station Gupta has already extracted more cash from his deal with the SNP than the £330m he reportedly paid to buy the facility. The SNP government appears to have been taken for a ride. As Gupta himself commented: “In our experience around the world we have yet to encounter any government as actively supportive and positive as the Scottish Government. We find this enormously helpful.”
As we wait to see whether Gupta’s whole empire will now collapse, resulting in the closure of the three Scottish plants at Clydebank, Dalzell and Lochaber, the SNP has a lot of questions to answer.
Why has the £7m lent to Gupta never been repaid? Why were binding guarantees not obtained for the promised new investment? Why was Gupta allowed to sell the power station for which guarantees were provided? What has been the cost of each job preserved to date?
Critically the typical SNP secrecy must stop. The terms of the deals and guarantees must be published. And the SNP Government must finally follow the Scottish Auditor General’s recommendation and provide some transparency in its financial dealings with private companies.
In the 2017/18 Audit of the Scottish Government Consolidated Accounts the Auditor General stated: “There is a need for the Scottish Government to be more transparent about its overall approach in providing significant public funds to support private companies….. there is no framework in place to support the Government’s decision making or approach in providing loans to private companies.”
This was ignored by the SNP. A year later, in the 2018/19 Audit the same recommendation was made. Again it was ignored by the SNP. Once again, in the latest audit of the Scottish Government relating to 2019/20, the Auditor General repeated the recommendation. Again it has been ignored by the SNP.
It is no surprise that the Scottish taxpayer has to incur major losses when the SNP feels free to ignore the professional recommendations of an independent audit body whose aim is to protect the public interest and just carries on taking ad hoc decisions to suit its own political agenda.
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Max Young is an undergraduate student at Edinburgh University.
