Dalzell historical industrial transaction - update: ministerial statement
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Statement given by the Minister for Business, Trade, Tourism and Enterprise Ivan McKee to the Scottish Parliament, Edinburgh on Wednesday 15 December 2021.
In 2016, faced with the potential permanent closure of the last remaining steel plant in Scotland and the loss of hundreds of highly skilled jobs, the Scottish Government took action to support the purchase of the rolling mills at Dalzell and Clydebridge.
Many members will remember that Longs Steel had owned the businesses, TATA Steel UK had taken these over from Longs. Following difficulties due to energy prices and feasible margins TATA Steel UK Ltd, had mothballed the plants in 2015 and were seeking to find an alternative operator of the business.
In order to facilitate the sale and to ensure the continued operation of this important industrial asset for Scotland, the Scottish Government took ownership of the business for a short period of time whilst it transferred from TATA Steel UK to Liberty House Group, part of GFG Alliance, who continue to this day to operate the rolling mill.
This transaction back in 2016 was a unique and unprecedented economic intervention by the Scottish Government. The agreement to facilitate the transaction was concluded over a period of days in March 2016, whilst parliament was in the pre-election recess.
In my statement today, I will provide a point of clarification in terms of one aspect of the agreement between the Scottish Government and TATA Steel UK Ltd. But before I do, I will provide some further background to the transaction.
Earlier in 2016, the employees of the rolling mills in the Lanarkshire steel communities left their work to start Christmas holidays in the knowledge they had been made redundant going into January 2016 with the prospect of a future for the Steel industry in Scotland looking very bleak. Only a handful of the people in the plant remained for health and safety. There had been excellent collaborative work from members across the chamber, trades unions and local authorities to support the Steel Taskforce. Despite the apparent lack of investors in the Scottish steel plants, the Steel Taskforce committed to leaving no stone unturned to find a positive outcome to the potential demise of the Lanarkshire mills. There are currently around 140 people employed at Dalzell and Clydebridge.
The Scottish Government’s intervention resulted in the continuation of steel production and skilled employment at Liberty Steel Dalzell. It was a detailed and complex negotiation that led to the transfer of the ownership of the plants to a business that has since supported the workforce and ensured the continued manufacture of high-quality Steel slab products from the Lanarkshire rolling mill.
This matter that I bring to the chamber today concerns one particular point within the contract. I wish to explain the issue; the work being done by Scottish Government to clarify this with the businesses involved and importantly to assure the people of Scotland and this Parliament that the decision to facilitate the continued manufacturing of steel in Scotland was the correct thing to do.
The steel industry across the UK and globally has faced many challenges in recent years. As set out in this chamber on 24 March 2021, the collapse of the Greensill Capital finance house, a major financier of the GFG Alliance, had highlighted a risk to the steel industry in Scotland. Ministers over this year, have previously advised the Parliament of our continued work to retain and support the economic opportunities that the Lanarkshire steel mills provide. I have met with local elected members to keep them informed of the work being done to protect the Steel industry in Scotland. Officials have been working to better understand the Scottish Government’s position in respect of the GFG Alliance as would be expected given the jobs at stake and support previously provided. It was during a detailed review of the previous transaction to inform the contingency work that officials discovered a detail that would need to be considered by the companies involved.
It is also important to note that whilst there is ongoing monitoring of the situation across the current business in Scotland, as I know we are aware that the UK Government have also been active in, as part of the wider GFG Alliance activity at the larger plants in other parts of the UK. There has not been a request for support from the Alliance. The business in Scotland still continues to operate and produce under challenging circumstances. That is a credit to the Scottish workforce.
On 24 March 2016, TATA Steel UK and Liberty House agreed for the Scottish Government to act as an intermediary between the companies to facilitate a sale of the plants from TATA Steel UK to Scottish Government, who would immediately sell the sites to Liberty House.
There is one specific part of the contract arrangement that has arisen during our contingency work, that we are advised may not comply with state aid rules. This clause granted an enduring indemnity from Scottish Ministers to Longs Steel, whereby Scottish Ministers would be liable to cover the cost of certain liabilities arising from TATA Steel’s ownership of the Lanarkshire plants.
It is important also to ensure the Chamber are aware that there has been no call on this indemnity to date and the circumstances where this would have been called upon are, in our view, unlikely to materialise. At the time of the deal, a parent company guarantee was signed with Liberty House, meaning that if that part of the company at Liberty Steel Dalzell ceases to exist then the liabilities then pass to the wider group. I would reiterate though that our contingency planning and recent reports on the wider group have highlighted that the Lanarkshire plant is operating well considering the current conditions they have faced.
If the wider group fails to exist and the site is going to be repurposed to a different use then some of those liabilities, for environmental remediation, may then crystallise to the operators of the site currently and to any previous operator of the site. Many varying factors would need to happen before such a scenario would come to fruition. It was however imperative that having identified this clause was no longer valid, I made the relevant business and the chamber aware of the situation.
Also, the chamber will want to note that no money has been paid or will be paid under this contract by the Scottish Government beyond the £1 paid to purchase the business, that was immediately recouped upon its sale.
In 2016, the contractual negotiation was proceeding at pace in a highly pressured commercial environment, with our aim being to save a totemic Scottish industry, an aim in which we were successful. It was not our intention to sign up to a contract clause which may not comply with state aid requirements. The conclusion reached on state aid, based on advice at the time, was different to what I have outlined today and we decided that we were able to proceed with the transaction.
We have informed TATA Steel, as members around the chamber would expect. We have ensured they have been provided notice of this statement, to allow them to consider any commercial implications for the business. As a global business we also needed to ensure they had time to notify their head office in Mumbai. It is understandable that they will need time to reflect and consider their position. We will continue to have supportive dialogue with TATA and the company have access to our officials as they require.
We have also formally informed Audit Scotland and will be taking steps to communicate with Liberty Steel UK and the European Commission through the relevant UK Government department
I would summarise, Presiding Officer, that the detailed analysis of commercial interventions taking place now demonstrates that this Government will always do its very best to ensure that any agreements we enter into are the right ones. My officials will work with stakeholders to go into further detail and analyse any lessons that should be learned.
I opened my statement by acknowledging the collective efforts across the chamber back in March 2016 to ensure that steel communities in Scotland had a future. Today high-quality steel products continue to be produced in Lanarkshire. Skilled manufacturing employment continues, which would not have been the case without our intervention. It was our assessment at the time, that this was the best way to ensure the reopening of the plants, to secure a key Scottish industrial asset for the future and ensure Scotland’s steel industry did not fall silent.
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