Scottish Government spending £2,000 per day for 'contingency planning' advice around GFG Alliance Lochaber deal

The Scottish Government is spending more than £2,000 per day to a major consultancy firm as part of “contingency planning” relating to the multi-million pound guarantee it struck with GFG Alliance over the Lochaber smelter.

Sanjeev Gupta of GFG Alliance with First Minister Nicola Sturgeon.

Officials signed off the contract with Deloitte, one of the so-called ‘Big Four’ accountancy firms, in May of this year.

The contract, worth a total of £405,600, will run until the end of February 2022 with the advice of the consultancy firm costing the Scottish Government £2,080 per day.

The deal with GFG Alliance meant the Scottish Government would guarantee the cost of a 25-year power supply contract between the Lochaber smelter and the adjacent hydro-plant.

This income stream reportedly was key to the purchase of both by Sanjeev Gupta’s finance empire GFG Alliance in 2016.

Ministers had hoped the continued operation of the plant - which employs around 100 people – through the £330m purchase by Mr Gupta from Rio Tinto would protect jobs in the area and allow for a sustainable steel production sector in Scotland.

The deal also reportedly included the promise of a new aluminium wheel factory and the creation of a further 2,000 jobs, neither of which has materialised.

As part of the new £400,000 contract, Deloitte will be on hand to offer “contingency planning” for this guarantee, which has been reported as being worth as much as £575m to the public purse.

The deal gained new pertinence when the administration of Greensill Capital, to which GFG Alliance was the biggest client, led to Mr Gupta attempting to refinance his business.

Reacting to the new contract with Deloitte, Scottish Liberal Democrat leader Willie Rennie said Holyrood and the public “have every right” to know what is being planned.

He said: “The questions are mounting for both the SNP Government and the GFG Alliance about what has happened already. This matters because thousands of jobs were promised but they haven't materialised.

"I think Parliament and the public have every right to see what is now being planned.

"This latest £400,000 contract is just the tip of the financial iceberg. The guarantees provided to the GFG Alliance represent one of the biggest deals ever signed off by the Scottish Government. Taxpayers are exposed to the tune of hundreds of millions.

The Scottish Government was asked to explain the nature of the work being undertaken by Deloitte, when it realised contingency planning was needed, and how concerned it is about the potential risk to the public purse.

It said a series of securities over the assets of GFG Alliance at Lochaber had been taken, along with other protections in support of the guarantee.

A spokesperson for the Scottish Government said: “The administration of Greensill Capital UK has impacted a range of businesses across the UK, including those operated by the GFG Alliance in Scotland.

“Scottish and UK Ministers are monitoring the situation closely and the Scottish Government has initiated routine contingency planning with input from specialist advisers such as Deloitte to protect its interests. Deloitte has been retained as advisers on matters relating to the Lochaber guarantee since 2017.

“In autumn 2016 the Scottish Government intervened to support continuing aluminium production in Lochaber.

“In November that year Scottish Ministers sought Parliament’s permission through the Finance and Constitution Committee to provide a guarantee of the smelter’s power purchases. The Committee reviewed and approved the contingent liability.

“Our support prevented the break-up of the assets and closure of the smelter, protecting hundreds of skilled jobs.”

A message from the Editor:

Thank you for reading this article. We're more reliant on your support than ever as the shift in consumer habits brought about by coronavirus impacts our advertisers.

If you haven't already, please consider supporting our trusted, fact-checked journalism by taking out a digital subscription.