An unrepentant Scottish Government has hit back as it comes under fire for a £586million guarantee deal struck to support the sale of an aluminium plant to the troubled GFG Alliance.
A spokesman for the government said the guarantee has not been called on despite GFG Alliance, owned by the family of Sanjeev Gupta, facing crisis since the collapse of its lender Greensill Capital earlier this year.
GFG is also embroiled in a Serious Fraud Office investigation announced in May into “suspected fraud, fraudulent trading and money laundering” in relation to its financing, including its arrangements with Greensill.
The controversial deal was struck when the smelter was sold by mining giant Rio Tinto to GFG in a deal worth £330million 2016.
This was underpinned by the Scottish Government guaranteeing 25 years of power purchases, via a complex arrangement, by Sanjeev Gupta’s company from another business owned by his father.
The acquisition included hydro power plants at Fort William and Kinlocheven as well as the estate, which includes the foothills of Ben Nevis.
According to analysis in the Financial Times, Greensill Capital was then able to transform this contract into £295m of debt, which in turn funded Mr Gupta’s acquisition of the smelter in Britain.
A Scottish Government spokesperson said that the guarantee was “not been called upon” which means it has not incurred cost.
In a statement, a spokesperson for the Scottish Government said: “We are committed to supporting jobs across Scotland and make no apology for doing so – including our backing for Scotland’s strategically important aluminium sector and the highly-skilled jobs it provides.”
It added that the deal was “approved by the cross-party finance and constitution committee following appropriate due diligence”.
Mr Gupta was hailed as the hero of the plant, the UK’s last remaining aluminium smelter.
He claimed the investment would create 2,000 new jobs in the region, but it is estimated fewer than 50 extra people have been hired this year.
Owners of the aluminium smelter insist the operation is profitable and is on track to create jobs once new investments take shape.
Uses for the site have changed in the last few years. Plans for the establishment of an alloy car wheel production were dashed in the light of falling confidence in the automotive industry.
GFG then unveiled a plan to build a factory casting blocks of aluminium known as billets for the UK construction sector, with the possibility of a water canning facility also to come on the smelter site.
A spokesman for GFG said: “The Lochaber aluminium smelter is a profitable operation and GFG Alliance’s commitment to invest in a new recycling and aluminium billet plant there will secure the future of the operations, create new high quality employment in the area and provide opportunities for the local supply chain.
“These expansion projects, which recently received consent from the local planning authority, will further bolster Lochaber’s role as a hub for green aluminium production – thanks to its hydro-electric facility integrated with the wider estate, the plant already produces some of the lowest carbon aluminium on the market.”
The Scottish Government further added that the deal included a “comprehensive security package consisting of the smelter, the hydro power station, extensive land holdings, and a series of other protections”.
It has said the net present value of the remaining guaranteed payments is now £285.9m
It added: “The value of the government’s security package which includes the asset values reported in the company’s published accounts exceeds the net present value of the remaining purchase power agreement revenue stream over the remaining 20 years.”
The Scottish Government was also criticised for being secretive about the value of the deal. The extent of its exposure to GFG was only revealed this week after a two year freedom of information battle.
It initially rejected disclosing the sum of the guarantee in February 2020, citing commercial confidentiality. The Scottish Information Commissioner overruled the decision in September 2021.
Willie Rennie, Scottish Liberal Democrat economy spokesman said: “It looks like the Scottish Government have been taken for mugs by the GFG Alliance with financial backing worth £586 million in return for a handful of extra jobs.
“Lochaber was promised 2000 jobs as a centre of alloy wheel production but very little has happened since apart from the delight in the boardroom of GFG Alliance that they were able to drive a financial return from that multi-million-pound financial backing from the SNP Government.
“The lack of transparency and attempts to withhold information on this deal will also be a concern to the people of Scotland. How can they hold their government to account when that government is working in the shadows?”
GFG is comprised of a number of firms structured into three core industrial pillars: Liberty Steel Group, Alvance Aluminium Group and SIMEC Energy Group, employing around 35,000 people, across 10 countries, with revenues of circa $20bn.
Liberty Steel has 12 steel and aluminium plants in the UK, directly employing around 5,000 workers, but supporting thousands more in the supply chain.