Financial questions on hydro plant and aluminium smelter at Lochaber: FOI release

Information requested

You requested the following information:

i. the size of the total gross liability of the Scottish Government under the 25-year financial guarantee relating to the hydro plant and aluminium smelter at Lochaber entered into in December 2016;

ii. the methodology that was used to value the asset at the time of the agreement in 2016/17;

iii. documents and correspondence including, but not limited to, slides, research and emails that were drawn up or sent as part of the Scottish Government's due diligence before entering into this guarantee.

In relation to part (ii) of your request you provided the clarification that the asset you referenced is the value of the annual fee over a 25-year period paid to the Scottish government in return for the financial guarantee it provided relating to the hydro plant and aluminium smelter at Lochaber (as detailed in paragraph 25 of the 2018/19 audit of the Scottish Government Consolidated Accounts).

You provided two further clarifications on the date range and scope of your request. The date range is 1 January 2016 to 30 June 2017 while the parties involved are the Scottish Government, the GFG Alliance and any of its employees and affiliated companies, and Greensill Capital and any of its employees and affiliated companies.

Response

While our aim is to provide information whenever possible, in this instance we are unable to provide some of the information you have requested because exemptions under sections of 2 FOISA apply. The reasons why these exemptions apply are explained in the Annex to this letter.

You asked the Scottish Government to provide a response for the following three points and I will address each of these in turn.

1. The size of the total gross liability of the Scottish government under the 25-year financial guarantee relating to the hydro plant and aluminium smelter at Lochaber, entered into in December 2016.

For reasons of commercial confidentiality we cannot publish the total gross liability of the Scottish Government under the guarantee. However, such details were shared in confidence with the Finance and Constitution Committee of the Scottish Parliament which has cross party representation and which approved the guarantee at the time.

2. The methodology that was used to value the asset at the time of the agreement in 2016/17.

In 2016-17 the total discounted value of premiums due to the Scottish Government, as valued per methodology required by IAS 17 Provisions, in respect of this guarantee was £18.7m.

As reported in the Scottish Government’s Consolidated Accounts published in September 2019 (https://www.gov.scot/publications/scottish-government-consolidated-accounts-yearended-31-march-2019/) the carrying value of this financial asset was reduced to nil as a result of the implementation of the new accounting standard. The methodology applied follows IFRS 9 for Financial Instruments.

3. Documents and correspondence including, but not limited to, slides, research and emails that were drawn up or sent as part of the Scottish Government's due diligence before entering into this guarantee.

The due diligence regarding the Scottish Government guarantee for the aluminium smelter in Lochaber was performed by Ernst & Young (EY). This work has been published previously with redactions in the response to FOI/19/01414 and can be found via this link – https://www.gov.scot/publications/foi-19-01414/. Nothing else could be found that fell within the scope of your request.

Annex - Reasons for not providing information
An exemption under section 33 (1)(b) of FOISA applies to the information you have requested because it relates to commercial information and publication of this information may prejudice the company or the Scottish Government.

This exemption is subject to the 'public interest test'. Therefore, taking account of all the circumstances of this case, we have considered if the public interest in disclosing the information outweighs the public interest in applying the exemption. We have found that, on balance, the public interest lies in favour of upholding the exemption. We recognise that there is a public interest in disclosing information as part of open, transparent and accountable government, and to inform public debate. However, there is a greater public interest in protecting the commercial interests of companies which enter into Scottish Government contracts, to ensure that we are always able to obtain the best value for public money.

About FOI
The Scottish Government is committed to publishing all information released in response to Freedom of Information requests. View all FOI responses at http://www.gov.scot/foi-responses.