MSPs call for transparency on public spending and strategy following failure of BiFab

22.01.2021

MSPs investigating the circumstances leading to the administration of Burntisland Fabrications Limited (BiFab) have expressed their concern over the “lack of transparency” on the part of the Scottish Government and company bosses about their investment decisions and plans for the business.

Holyrood’s Economy, Energy and Fair Work Committee described the failure of the company as a “huge blow” to workers and local communities and a “concerning reflection” of the ability of Scottish businesses to benefit from the growing offshore wind industry.

BiFab, which makes structures for the oil and gas and renewable energy industries, went into administration in December 2020 after failing to win contracts to build wind turbine jackets for developments off the coast of Angus and Fife, following which the Scottish Government announced it could not provide further financial support to the company – citing EU state aid rules.

In a report published today, the Committee said it was “extremely concerned” by the lack of transparency in decision-making by both the yard owners DF Barnes and the Scottish Government, which had invested almost £40 million of public money in BiFab since 2017 before converting that investment to an equity stake in the company, as well as providing a separate loan facility of £15 million to support working capital and allow the company to tender for contracts.

Part of the remit for the Committee’s inquiry was to scrutinise the Scottish Government's actions and determine what investment, guarantees or loans were made and when.  

However, MSPs heard conflicting evidence from the Scottish Government and DF Barnes regarding both parties' expectations of their respective levels of investment and roles in providing financial guarantees to BiFab. Despite repeated requests by the Committee and the financial loss to the public purse, neither party shared the pre-acquisition business plan.

The Committee, which also explored why the company had failed to gain contracts from recent offshore wind projects in Scotland, heard that the consequences of EU state aid regulations as understood and applied in the context of BiFab may have disadvantaged it to the benefit of state-owned/subsidised enterprises in Europe and the far and near East.

The report therefore calls for any future subsidy regime now that the UK has left the EU to ensure UK manufacturing jobs are given a fair opportunity to compete with low-wage economies.

Committee Convener, Gordon Lindhurst MSP said:

“The failure of BiFab is a huge blow for workers and communities in Burntisland, Methil and Arnish. It is also a concerning reflection of the ability of the Scottish supply chain to benefit from the growth of offshore wind. It is now vital that the administrators find a buyer to secure the future of the company.

“The Committee is extremely concerned by the lack of transparency on the part of both DF Barnes and the Scottish Government over their decision making and use of public funds. Both cited the pre-acquisition business plan as corroboration of their position, but despite repeated requests neither shared this business plan with the inquiry.

“The evidence to our inquiry indicated that, for a number of reasons including financial viability and state aid rules, neither DF Barnes nor the Scottish Government felt able to provide the finance required to secure the vital contracts BiFab needed to avoid administration. The financial loss to the public purse of BiFab failing as a company demonstrates the need for greater accountability and transparency, and for the Government to set out its overarching policy on strategic investment in failing companies.”

The Committee, which also looked into the offshore wind sector in Scotland and its supply chain, expressed its disappointment that neither SSE Renewables or EDF Renewables had awarded recent contracts to BiFab – decisions that were significant factors in the administration of the company.

In its report the Committee said all reasonable steps should be taken to support a robust and competitive local supply chain for offshore wind, and it urged the UK Government to fully consider all options available to it to balance investment in offshore wind, energy prices, and local supply chain benefits. This should include exploring the possibility of increased contractual requirements to demonstrate that consideration has been given to local supply chains, requirements of fair work policies and pay, and wider environmental factors.

MSPs noted that the UK Government is considering changes to the “Contract for Difference” (CfD) process and recommended that as part of this work it explores how environmental factors and fair work requirements, including labour costs and conditions, could be considered in bidding for contracts across the UK.

Mr Lindhurst added: “We heard evidence that Scotland has missed opportunities to economically benefit from growth in the offshore wind sector. The Committee believes that it is essential for the Scottish Government to prioritise areas where there will be job opportunities and economic benefits in the future.

“Both the UK and Scottish Governments have set ambitious targets for the development of floating offshore wind. That ambition must be matched with a clear strategy on how targets will be met whilst maximising opportunity for Scottish content.”

Background                                                                                       

 

The Committee agreed that the remit for this phase of its inquiry work was to investigate:

• why BiFab has failed to gain contracts from recent offshore wind projects in Scotland, including the role of DF Barnes/JV Driver as owners of the Scottish yards and SSE and EDF as the contracting companies;
• the role of the Scottish Government, including what investment, guarantees or loans were made and when, including the recent decision not to offer further financial support to BiFab;
• the role of Contracts for Difference and the UK Government's Offshore Wind Sector Deal as drivers for investment in the sector;
• current state aid rules and their impact on government investment and conditionality and the potential impact of any state aid rules following the UK's exit from the EU;
• how the leasing and planning process will be used in future to encourage developers to work more closely with the Scottish supply chain;
• what is the Scottish Government's strategic approach to investing in BiFab and other companies in the renewable energy sector and what lessons can be learned from the BiFab situation.

The full report is available here.

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