Parliamentary Statement – BiFab update
Statement given by Economy Secretary Fiona Hyslop on Tuesday 3 November 2020:
I welcome the opportunity to address Parliament today on the current position facing BiFab.
This Government has shown real commitment to BiFab, and we continue to explore all options to secure a future for the NnG contract in Scotland.
I have been clear throughout this process on our priorities, which have been shared by the majority shareholder, JV Driver: to secure the build out of the NnG contract in Scotland; and to protect the public interest – in terms of financial exposure and the jobs that a successful business might support.
These priorities reflect our aspirations for offshore wind supply chain manufacturing in Scotland. And that Scottish companies and the Scottish workforce benefit from the build-out of these projects, creating jobs and boosting our economy, especially in these challenging times.
Our support for Bifab has been significant. £37.4 million was converted to a 32.4% equity stake and a loan facility of up to £15 million was provided.
This financial support ensured that the Beatrice Offshore Wind Farm, Moray East Pin Piles and First E&P contracts were completed – creating over 1000 jobs across the 3 yards at Arnish, Burntisland and Methil.
As a minority shareholder, we have no role in the business’ day to day decisions.
We work closely and collaboratively with the majority shareholder, JV Driver and the BiFab Board of Directors, but ultimately it is for the Directors to take all necessary decisions on the operations of the business.
I would emphasise at this point that I have been disappointed by JV Driver’s lack of financial investment in the business and the zero risk position it has adopted as majority shareholder.
This stance is a key factor in the situation which the business now faces.
This Government backed the strong prospects for the offshore wind supply chain in Scotland and Bifab’s potential role in that.
BiFab had a strong pipeline of work opportunities at the start of 2020. With the potential to secure both the NnG and Seagreen contracts. This would have allowed continuous work from 2020-2022. The pandemic delayed both the NnG and Seagreen projects, impacting BiFab’s cash flow problems.
I am extremely disappointed that SSE did not award the Seagreen contract to BiFab. This decision has been pivotal in the situation which BiFab now faces. The BiFab bid was competitive with all other UK and European bids. Furthermore, BiFab’s tender included fully procured Scottish steel, offering an opportunity for SSE to demonstrate its support for the Scottish supply chain during these challenging times.
The UK policy context also presents challenges. The UK Government’s damaging Contract for Difference rules work against Scotland and the Scottish supply chains, meaning companies like BiFab have limited chances of securing work.
The Contract for Difference auction needs to ensure that project bids are not secured purely on the price per megawatt. The UK Government must consider the wider economy and our response to the climate emergency.
We very much welcomed EDF’s support to BiFab, carving out the contract for delivery of 8 jackets from within their wider NnG project. This commitment to the development of our Scottish supply chain was a welcomed boost, especially as wider trading circumstances are very difficult.
However, the delays to the NnG contract award as a result of the pandemic, SSE’s decision to award the Seagreen contract to companies in China and the Middle East, compounded by JV Driver’s continued lack of investment in the business has greatly weakened Bifab’s cashflow and balance sheet.
These factors bring about a position whereby the Scottish Government cannot currently legally continue to financially provide more support to BiFab. I recognise the disappointment felt across the Chamber, by the Trades Unions and the remaining 30 staff currently employed by BiFab.
And I share this disappointment. It is not that the Scottish Government does not want to continue to support BiFab – it currently cannot.
I have shared with Parliamentary colleagues with a Constituency or Regional interest that I met with last week a follow up briefing detailing information on the State aid rules which impact BiFab and Scottish Government support to the business.
Ministers are required to operate within the law. No decision taken by Ministers can be in contravention of State aid rules, or any other legal provision, including international treaties, by which Scotland is bound.
I have considered all legal options for continued financial support to BiFab by Scottish Government. My conclusion that Scottish Government can no longer continue to support the business currently is based on a range of facts including: the current position of the business; its trading forecasts; its prospects for future work; and the continued no-risk position of the majority shareholder.
For financial support to be legal, it needs to be provided in line with the Market Economy Investor Principle, often referred to as ‘MEIP compliant support’.
The key question in determining whether or not financial support to the business would be possible is whether a market economy investor would do the same.
We can only act as a commercial investor would in our situation. If the majority shareholder is not prepared to invest in the business, it is very challenging to demonstrate that another commercial investor would invest.
I will address some of the media speculation I have seen.
Scotland remains bound by EU State aid law. Choosing not to comply is not an option. The Scotland Act makes that clear. The Ministerial Code makes that clear.
And there has been some suggestion that I should check with UK Ministers that I have got this right. To be clear, compliance of Scottish Ministers’ with State aid law is a matter for Scottish Ministers. There is no role for UK Ministers in this.
We did however seek an urgent meeting with UK Ministers to establish what support, if any, it might be within their powers to provide. I met this morning with the Chancellor of the Duchy of Lancaster to discuss the issues facing BiFab. This was a constructive discussion, and we agreed to form a joint UK and Scottish Government working group, to ensure all possible options are explored.
As a minority shareholder, we have been exhaustive in our consideration of the options available to us to financially support BiFab from public funds and we will continue to explore all options. The UK Government shares our view of the challenges presented by State aid rules, but we will work together to do what we can.
In parallel, the Scottish Government continues to work closely with the majority shareholder and others to find a solution to secure delivery of the NnG contract in Scotland.
Both I and my officials have been in regular contact with the Board of Directors to explore options to deliver on our shared primary objective, namely the delivery of NnG in Scotland.
On the back of SSE’s decision on the Seagreen contract, I met with representatives of the Board on 18th Sept. I communicated to them the emerging risk that Scottish Government would not be in a position to continue its financial support to the business.
This began a period of close engagement with the Board and others to explore options which would still allow for the build out of the NnG contract.
From the point when the majority shareholder confirmed they were content for us to engage with the Trades Unions with an interest in BiFab, we have done so actively.
We have left no stone unturned in our search for a solution to the challenges faced by the business. And we are committed to working with all parties to deliver the best outcome for Scotland.
In doing so, the Scottish Government must act within the law, in particular State aid regulations, and should also act in a way which minimises exposure to the public purse. In the absence of a detailed proposal for the continued operations of the business from the majority shareholder, it is difficult for the Scottish Government to currently establish a legal and financial case for continued support.
Dialogue continues with the BiFab Board on a legally compliant solution to secure a future for the company.
There remain significant hurdles to be overcome to secure that future. But this Government has and will continue to do everything within its devolved powers to support the business.
I welcome the engagement of Members across the Chamber on these important issues – on BiFab, and the wider issues facing the offshore renewables supply chain in Scotland.
I recognise the breadth of support there is in the Chamber for our objectives for BiFab and the wider industry. And we remain keen to work with all partners to deliver the best outcomes.
Presiding Officer, we will leave no stone unturned, we will explore all options and we will do so collectively and collaboratively with all key interests.
I would be happy to update Parliament again in due course.