Dalzell Historical Industrial Transaction

– in the Scottish Parliament on 15th December 2021.

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Photo of Liam McArthur Liam McArthur Liberal Democrat

The next item of business is a statement by Ivan McKee, who will give an update on the Dalzell historical industrial transaction. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

Photo of Ivan McKee Ivan McKee Scottish National Party

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 and that Tata Steel UK had taken them over from Longs. Following difficulties because of energy prices and feasible margins, Tata Steel UK mothballed the plants in 2015 and it was looking for an alternative operator for the business.

To facilitate the sale and ensure the continued operation of such an important industrial asset for Scotland, the Scottish Government took ownership of the business for a short period of time while it transferred from Tata Steel UK to Liberty House Group, which is part of GFG Alliance and which continues to operate the rolling mill to this day.

The transaction that took place 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 while Parliament was in the pre-election recess. In my statement today, I will provide a point of clarification about one aspect of the agreement between the Scottish Government and Tata Steel UK. Before I do so, however, I will provide some further background to the transaction.

Earlier, the employees of the rolling mills in the Lanarkshire steel communities had left their work to start the Christmas holidays in the knowledge that they had been made redundant going into January 2016 and that the prospect of a future for the steel industry in Scotland was looking very bleak. Only a handful of people remained in the plant for health and safety reasons.

There had been excellent collaborative work from members across the Parliament, trade unions and local authorities to support the steel task force. Despite the apparent lack of investors in the Scottish steel plants, the steel task force committed to leaving no stone unturned to find a positive outcome and avoid the potential demise of the Lanarkshire mills.

Currently, around 140 people are employed at Dalzell and Clydebridge.

The Scottish Government’s intervention resulted in the continuation of steel production and skilled employment at Liberty Steel Dalzell. A detailed and complex negotiation led to the transfer of the ownership of the plants to a business that has since supported the workforce and ensured the continued manufacturing of high-quality steel slab products from the Lanarkshire rolling mill.

The matter that I bring to Parliament today concerns one particular point in the contract. I wish to explain the issue and the work that the Scottish Government is doing to clarify it with the businesses that are involved, and importantly to assure the people of Scotland and the Parliament that the decision to facilitate the continued manufacturing of steel in Scotland was the correct one.

The steel industry across the United Kingdom and globally has faced many challenges in recent years. As was set out in Parliament on 24 March 2021, the collapse of the Greensill Capital finance house, which was a major financier of the GFG Alliance, highlighted a risk to the steel industry in Scotland.

During 2021, ministers have advised the Parliament of our continued work to retain and support the economic opportunities that the Lanarkshire steel mills provide. I have met local elected members to keep them informed of the work that is 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 that are at stake and the support that has been provided to it. 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 that are involved.

It is important to note that, although there is on-going monitoring of the situation across the current business in Scotland, we are aware that the United Kingdom Government has also been active 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 GFG Alliance. The business in Scotland continues to operate and produce under challenging circumstances, which is a credit to the Scottish workforce.

On 24 March 2016, Tata Steel UK and Liberty House agreed that the Scottish Government would act as an intermediary between the companies and facilitate a sale of the plants by Tata Steel UK to the Scottish Government, which would immediately sell the sites to Liberty House.

We are advised that there is one specific part of the contract arrangement that has arisen during our contingency work that may not comply with state aid rules. The clause in question granted an enduring indemnity from the Scottish ministers to Longs Steel, whereby the 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 to ensure that the Parliament is aware that there has been no call on that indemnity to date, and that the circumstances in which it would be called upon are, in our view, unlikely to materialise. At the time of the deal, a parent company guarantee was signed with Liberty House, which meant that, if the part of the company at Liberty Steel Dalzell ceased to exist, the liabilities would pass to the wider group. However, I reiterate that our contingency planning and recent reports on the wider group have highlighted that the Lanarkshire plant is operating well, considering the current conditions that it has faced.

If the wider group fails to exist and the site is to be repurposed for a different use, some of those liabilities—liabilities for environmental remediation—may then crystallise to the current operator and any previous operators of the site. Many varying factors would need to arise before such a scenario would come to fruition, but it was imperative that, having identified that the clause in question was no longer valid, I made the relevant business and the Parliament aware of the situation.

In addition, the Parliament will want to note that no money has been paid or will be paid under the contract by the Scottish Government beyond the £1 that was paid to purchase the business, which was immediately recouped upon its sale.

In 2016, the contractual negotiation proceeded 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 that might not comply with state aid requirements. The conclusion that was reached on state aid, based on advice at the time, was different from what I have outlined today, and we decided that we were able to proceed with the transaction.

As members around the chamber would expect, we have informed Tata Steel, and we have ensured that it has been provided with notice of this statement, to allow it to consider any commercial implications for the business. We also needed to ensure that Tata Steel, as a global business, had time to notify its head office in Mumbai. It is understandable that it will need time to reflect on and consider its position. We will continue to have supportive dialogue with Tata, and the company has access to our officials as it requires.

We have also formally informed Audit Scotland, and we will take steps to communicate with Liberty Steel UK and the European Commission through the relevant United Kingdom Government department.

In summary, the detailed analysis of commercial interventions that is now taking place demonstrates that the Scottish Government will always do its very best to ensure that any agreements that 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 that were made across the Parliament 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 our intervention was the best way to ensure the reopening of the plants, to secure a key Scottish industrial asset for the future and to ensure that Scotland’s steel industry did not fall silent.

The Deputy Presiding Officer:

The minister will now take questions on the issues that were raised in his statement. I intend to allow around 20 minutes for that, after which we will move on to the next item of business. I would be grateful if members who want to ask a question could press their request-to-speak buttons or, if they are joining us remotely, place an R in the chat function.

Photo of Jamie Halcro Johnston Jamie Halcro Johnston Conservative

I thank the minister for advance sight of his statement.

In this parliamentary session and in the previous one, I have questioned ministers about transparency regarding the Scottish Government’s exposure in the form of guarantees and support to the GFG Alliance. We have seen the extended attempts by the

Financial Times newspaper to access figures, which it should have been relatively straightforward for the Government to provide, on the taxpayer’s exposure relating to the Lochaber operations, which we discovered amounted to a sum of some £586 million.

From today’s statement, the Scottish Government appears to have been unaware of its commercial exposure to the operations in Lanarkshire. It has been advised that its arrangements, which were rushed through ahead of the elections in May 2016, with the Parliament unable to scrutinise the deal but ministers able to make political capital out of it, may be unlawful.

When was the Scottish Government first advised that its agreement might not comply with state aid rules? How much of the potential liabilities is the Scottish Government exposed to in the deal, and how long will those exposures remain?

For the chamber to have any confidence in the transparency or even clarity of the Scottish Government’s agreements, will the minister agree to full transparency in relation to the Scottish Government’s relationship with GFG Alliance and commit to making available to MSPs any information relating to those agreements?

Photo of Ivan McKee Ivan McKee Scottish National Party

The first point to make is that there are no exposures to the Scottish Government as a consequence of what I have outlined today. The second point is that we are, of course, committed to full transparency within the limits of legal advice and commercial sensitivity and will continue to be so. The third point to make is that the statement that I made today has no bearing on Lochaber, which was a completely separate transaction.

I also make the point that the number that Jamie Halcro Johnston quoted with regard to Scottish Government exposure is more than covered by the assets that the Scottish Government has security for in relation to Lochaber. He will be well aware of that, because that information has been made available. There is therefore no exposure to the Scottish Government with regard to that transaction either.

Photo of Ivan McKee Ivan McKee Scottish National Party

The final point that I will make is that, although the Scottish Government moved the transaction through at pace in March 2016, it was not—as the member perhaps implied—as a consequence of the election timetable. Rather, it was absolutely as a consequence of our needing to move fast to secure that commercial deal to save those jobs. It was about the commercial reality that we faced at that time. Frankly, we are proud that we did that in order to save those jobs and the Scottish steel sector. It was the right decision at that time and it continues to be so. There is still a steel sector in Scotland and people are still employed in highly skilled jobs in that sector in Scotland. As I made clear, there is no exposure to the Scottish Government as a consequence of my statement today or the actions that we took at that time.

The Deputy Presiding Officer:

I encourage members to ask their question and then to listen to the response.

Photo of Daniel Johnson Daniel Johnson Labour

I note that, Presiding Officer.

I remind the chamber of my entry in the register of members’ interests, as I am a member of Community, which is the trade union that represents steel workers. I, too, thank the minister for advance sight of his statement.

Despite the Government’s acknowledgement that it broke the law, is it the case that there is no implication for the security of the 140 jobs on that site? That is perhaps the most important question.

From one former business person to another, can we perhaps put this into plainer terms? What are we talking about? Is the Government saying that, if GFG and Liberty House were to collapse, it would have to pay the clean-up costs? If so, what would that bill be? The clean-up cost for Ravenscraig was £70 million, 20 years ago. Given that it has written this indemnity, for which there is theoretical liability, is there any obligation whatsoever for Tata to rescind that? Although the Scottish Government may have broken the law, there is no obligation on Tata to let it off the hook, is there?

Finally, I will ask about process. When did this come to light? I do not believe that the minister answered that important question from Jamie Halcro Johnston. How is it possible that such an important deal could have got through Government due diligence without the fact that it breaks the law being spotted?

Photo of Ivan McKee Ivan McKee Scottish National Party

I am sorry about the timing point—Jamie Halcro Johnston asked a number of questions.

We have been looking at the matter through the course of the past month, as a consequence of GFG’s evolving situation, in order to understand what we may need to do in relation to being involved to save those jobs, should a difficult situation transpire.

As I said in my statement, it is all credit to the workforce at the site that the plant continues to operate successfully in the face of significant challenges. A very complex situation has had to be worked through and advice has had to be taken as to the situation with regard to where we are just now. That process has been worked through and, as we have achieved clarity on the situation and taken the relevant advice, we bring forward this statement to provide transparency to the Parliament and others as to the current situation.

In relation to liability, the whole point of the statement is to say that, as a consequence of the current position, there is no liability to the Scottish Government. I made that very clear in my statement.

Photo of Clare Adamson Clare Adamson Scottish National Party

As a member of the steel task force, which was, of course, a cross-party endeavour, I am aware how vital it was to save the jobs at the steel mills at

Dalzell and Clydebridge. Steel making is synonymous with my constituency of Motherwell and Wishaw. What impact, if any, will the substance of the statement have on the on-going Liberty Steel operations at Dalzell and Clydebridge and the 140 jobs that are still protected by the deal that the Scottish Government made?

Photo of Ivan McKee Ivan McKee Scottish National Party

As the member is aware, 140 people are employed at the site, and those jobs would not exist if the Scottish Government had not intervened and protected the sector, and there are many jobs in the supply chain and the wider community that are supported as a direct and indirect consequence of that. The statement today makes absolutely no impact on those jobs; they will continue as long as the plant continues to operate.

As I said, officials and I work closely and regularly with the business, local members, trade unions and others to understand the latest position. The business continues to operate successfully and the Scottish Government has been very engaged to understand what we need to do to ensure that that continues to be the case, because we are committed to the sector in Scotland.

For clarity, today’s statement will have no impact on that situation.

Photo of Tess White Tess White Conservative

In the statement, the minister said that Scottish Government officials

“will work with stakeholders to ... analyse any lessons that should be learned.”

Given the lack of transparency around the agreement, can the minister confirm which stakeholders will be involved in the process and whether the findings will be shared fully and expeditiously with the Parliament and the wider public?

Photo of Ivan McKee Ivan McKee Scottish National Party

That we have made the statement today talks to the fact that we are and continue to be committed to transparency on the situation. We will look at the internal processes regarding the conclusions that were arrived at in 2016 and why they differ from the conclusions that we have arrived at at this point in time. To ensure full transparency, within the restrictions placed on us with regards to the disclosure of legal advice and commercial sensitivity, we will make available information as necessary to the Parliament and beyond.

On engagement with stakeholders, I have already made it clear that we engage regularly with the full range of stakeholders, including the GFG Alliance; Tata, with regards to this particular issue; local members; trade unions; and others in the local community and wider industry who have an interest in the matter and in the Scottish Government’s continued support to ensure that the jobs in the steel plants in Lanarkshire continue.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

Having worked at Dalzell 35 years ago and at Clydebridge briefly before that, I was heartened that the Scottish Government acted to save the remains of an industry that lost 16,000 jobs in Scotland in the 1970s, under Labour, and 10,000 in the 1980s and 1990s, under the Tories. In addition to the 140 direct jobs, how many people working in the supply chain have had their jobs saved by the actions of the Scottish Government? I am interested in this answer because it is clear that the Opposition is not.

Photo of Ivan McKee Ivan McKee Scottish National Party

To be honest, I find that hard to believe. Kenny Gibson must have had his short trousers on when he was working there, 35 years ago. I commend him for his efforts as a youngster in supporting Scotland’s steel sector.

As I identified, there are 140 direct jobs, but there are many more in the supply chain and in the wider communities that are dependent on the continued operation of the plants at Dalzell and Clydebridge. The Scottish Government took forward the complex transactions to make sure that the deals could go through, in order to save the sector, and that was absolutely the right thing to do.

We see great opportunities for the sector as we move into an environment where the net zero economy becomes more significant. We will have on-going conversations with the plants about how they can take advantage of that and continue to innovate and provide a strong future for themselves in the rapidly evolving steel sector.

The Deputy Presiding Officer:

I call Richard Leonard, who joins us remotely.

Photo of Richard Leonard Richard Leonard Labour

I refer members to my entry in the register of members’ interests: I was a member of the Scottish steel task force and my first priority is to save the jobs.

We know that Greensill Capital has collapsed, with losses of £1 billion, and we know that GFG Alliance is under investigation by the Serious Fraud Office. We also know that, tomorrow, Audit Scotland will publish its audit of the Scottish Government’s consolidated accounts. Is that why the statement was rushed out today?

Photo of Ivan McKee Ivan McKee Scottish National Party

Richard Leonard is correct in saying that the focus is on saving jobs, which remains the priority. I am proud that we have been successful in that regard and that people have been in work over the past five years, which would not otherwise have been the case.

As I have said to other members, we made the statement to ensure that there is transparency for the Parliament.

The situation is a complex one that we have been working on as a consequence of the evolving situation at GFG, which has led us to look at all possible scenarios that might unfold. I am thankful that, despite the difficulties with Greensill, the GFG business continues to operate and the management team at the Lanarkshire plants continues to produce high-quality products to sell into a currently strong market. We continue to engage closely with the team.

The timing is a consequence of our having worked through complex issues over the past months, to understand the situation as it transpired. Detailed scenario planning on what the future might hold, then looking at previous transactions as a consequence of that, led us to a complete review of the work that was done in 2016. Out of that work came questions on which we took expert advice, so that we could understand the implications. That is why we made the statement today.

I reiterate that there is no financial liability for the Scottish Government as a consequence of what I have said today.

The Deputy Presiding Officer:

Minister, I must ask you to be a bit more succinct in your responses.

Photo of Gordon MacDonald Gordon MacDonald Scottish National Party

Although the Scottish Government’s actions to save the Clydebridge and Dalzell plants have been welcome, members of the public will want to know that they were good value for taxpayers’ money. For clarity, can the minister provide an assurance that the contract has come at no cost to the Scottish taxpayer?

Photo of Ivan McKee Ivan McKee Scottish National Party

Yes, I can confirm that. The Scottish Government incurred no up-front costs from the transaction. As I said, we paid £1 and got that money back. Scottish Government officials supported work to complete the transaction as part of their normal range of duties and, as

I said, the news that I have shared with Parliament today does not create any financial liability for the Scottish Government.

The Deputy Presiding Officer:

I call Willie Rennie, who will join us remotely.

We will go to Colin Beattie and come back to Willie Rennie if we can sort out the link.

Photo of Colin Beattie Colin Beattie Scottish National Party

Can the minister provide further information on the most recent assessment of the Lanarkshire plant’s productivity?

Photo of Ivan McKee Ivan McKee Scottish National Party

I thank the member for that question, which is important because the plant’s survival is based on its ability to sell into the steel market.

As I said, officials regularly meet the local management team. It is heartening that, even during the current challenging circumstances, the plant continues to operate and to produce high-quality steel plate, and that steps continue to be taken to increase the productivity of operations in the Lanarkshire plant. The Scottish Government is supportive of those steps, and I am kept regularly updated on the issue.

The Deputy Presiding Officer:

I gather that there is still an issue with Mr Rennie’s connection, so we will go to Maggie Chapman, who also joins us remotely.

I think that we have lost all the connections. I call Liz Smith, who is with us in person.

Photo of Elizabeth Smith Elizabeth Smith Conservative

I am here, Presiding Officer.

I listened carefully to the answers that the minister gave to Jamie Halcro Johnston and Daniel Johnson, but I do not think that I heard him tell them what they asked for. When did he find out that there had been a breach of the contract?

Photo of Ivan McKee Ivan McKee Scottish National Party

As I thought I had made very clear, this has been a process of working through a range of questions then seeking clarification on the implications of the answers. Earlier this year, in light of the GFG situation, we started to assess the current situation at Dalzell, what its implications might be and what scenario planning could look like as a consequence. We also had a look back through previous transactions that took place in 2016.

During the course of that work, a number of issues were raised, and we sought expert advice in order to understand their implications. Clearly, we have had to have discussions back and forward in order to fully understand and to seek clarification of what are very complex transactions. We brought the statement to the Parliament as soon as we could—

Photo of Ivan McKee Ivan McKee Scottish National Party

We brought this statement to Parliament as soon as all our questions had been asked and answered, so that we had complete clarity on the situation and were able to articulate a statement that takes into account all the advice. Members would not expect us to come with a statement that was half baked—

Photo of Ivan McKee Ivan McKee Scottish National Party

We just became aware—[

Interruption

.]

The Deputy Presiding Officer:

Excuse me, minister. Members who were not even in the chamber for the statement are now shouting; I ask Stephen Kerr, in particular, to pipe down and listen to the response from the minister.

Photo of Ivan McKee Ivan McKee Scottish National Party

We brought the statement to Parliament as soon as we had clarified the answers in the advice, in order to ensure that we could deliver a robust statement that takes into account all the factors and information that are available at this time.

The Deputy Presiding Officer:

We still appear to be having connection problems, so I call Fulton MacGregor.

Photo of Fulton MacGregor Fulton MacGregor Scottish National Party

As the representative of a constituency that has a proud steelworks heritage, including the Gartcosh finishing mill that was closed in 1986 to a huge public outcry—I was only six the at time, but my granddad worked there—I ask whether the minister can provide any further detail on the Scottish Government’s latest engagement with steel sector stakeholders regarding the challenges and opportunities that the sector faces in ensuring a safe and healthy future for steel in Scotland.

Photo of Ivan McKee Ivan McKee Scottish National Party

As I said earlier, the Scottish Government is hugely focused on understanding how the sector is evolving and is watching that closely. I am a member of the UK steel council, which includes all the major steel producers across the UK and is chaired by the Secretary of State for Business, Energy and Industrial Strategy.

There are huge opportunities for the steel sector in the move to a net zero economy. Zero Waste Scotland is looking at the circular opportunities for energy transition in Scotland. Its report, “How Should Scotland Manage its Scrap Steel?” speaks to that and is the first in a series of such reports that it will produce. I welcome the work that is being done by Zero Waste Scotland and others in the area, and I look forward to seeing the follow-up reports, which will help to inform our policy. That work is timely, given the emphasis that the 26th United Nations climate change conference of the parties—COP26—placed on helping energy-intensive industries, such as the steel sector, as they move towards net zero.

The Deputy Presiding Officer:

I am informed that Maggie Chapman can now join us remotely.

Photo of Maggie Chapman Maggie Chapman Green

I thank the minister for advance sight of his statement. We know that steel has been an important part of Scotland’s industrial landscape through providing jobs and materials that are much needed in our economy. I echo the minister’s remarks about the resilience of the workforce.

Given the issues surrounding GFG Alliance, which other members have mentioned, and the high-carbon nature of the steel industry, can the minister outline what role he expects the steel industry to play in Scotland’s future and how we can ensure that we retain the skills and expertise of the workforce in Scotland’s industrial future?

Photo of Ivan McKee Ivan McKee Scottish National Party

That is a good question. As I said, with regard to GFG, we are watching the situation closely and running extensive scenario planning on how we might respond to developments.

We absolutely understand the energy-intensive nature of the steel sector. There is a huge commitment in the sector in Scotland, the United Kingdom and internationally to move towards a net zero future and to decarbonise steel production, and there is a huge focus on the creation of green steel. That is something that we are very supportive of and on which we engage closely with people. Ensuring that there is a just transition for the sector and that the workers continue to be engaged in producing high-quality green steel in the future is something that we are focused on delivering for the workers and their communities and for people across Scotland.

The Deputy Presiding Officer:

Finally, I call Willie

Rennie. Mr Rennie, can you hear us?

That answers that question. Unfortunately, we need to pause briefly before we move on to the next item of business.