Scottish government may have broken law in steel mill deal

The Scottish government may have broken state aid rules while facilitating the sale of a Motherwell steelworks in 2016, MSPs have been told.

The government acted as an intermediary in the transfer of the Dalzell plant from Tata Steel to Liberty House.

But the deal has been reviewed in light of concerns about GFG Alliance, the parent company of the new owners.

Business minister Ivan McKee said it had revealed a clause in the contract that could have broken state aid rules.

The clause had committed the government to protecting Tata from future costs if Liberty were to go bust.

Mr McKee said this was "no longer valid" and "unenforceable", and that liability could pass back to the previous owners.

However Tata said on Wednesday that it considered the deal to be "valid and binding in all aspects".

The Scottish government has asked UK ministers to refer the matter to the European Commission.

It could fall to European courts to rule on whether state aid rules were broken - and who would ultimately be liable for future costs.

• Steel plants handed over to new owner

Two steel mills, at Dalzell and Clydebridge, were mothballed by Tata Steel in late 2015. The following year the Scottish government stepped in to facilitate their sale to Liberty House to save local jobs.

The government bought the sites for £1, then immediately sold them on to the new owner, Sanjeev Gupta.

First Minister Nicola Sturgeon was present at the handover, and personally reopened the Dalzell steelworks later that year.

As part of the deal, ministers agreed to protect Tata Steel from potential future costs for the Dalzell site, while Liberty House - and its parent company, GFG Alliance - made a similar commitment to the government.

The government said it was acknowledged at the time that this "back-to-back indemnities" approach was "untested" and "novel", but that it had been advised that it could go ahead.

However a review has now found that the clause granting indemnity to Tata "may represent state aid" - even though, as Mr McKee stressed, no money has changed hands.

Nicola Sturgeon was present at the handover of the Dalzell site to buyer Sanjeev Gupta

The minister said that the clause was "no longer valid", and that if the current owners of the plant were to fold, costs for environmental remediation at the site could ultimately be passed back to previous operators.

Mr McKee underlined that "many varying factors would need to happen before such a scenario would come to fruition", adding that it was "unlikely to materialise".

However, a spokesman for Tata Steel UK said the firm considered the sale contract to be "binding and valid in all aspects", and called for further talks with ministers.

He said: "In March 2016, we agreed the sale for £1 of the two plants to the Scottish government which sold them on to Liberty House.

"This enabled steel processing to resume in Scotland. We believe this was a good outcome for the business, employees and local community.

"We consider the 2016 sale agreement - which was negotiated in good faith between the Scottish government and Tata Steel on commercial terms - to be valid and binding in all aspects.

"We would welcome further dialogue with the Scottish government on this matter to understand its position in more detail."

'Amateur hour'

The deal was re-examined due to concerns about GFG Alliance after its main lender, specialist bank Greensill Capital, fell into administration in March.

This has raised concerns about the future of Liberty's steel operations, but Mr McKee told MSPs that the plant was "operating well, considering the current conditions".

The government has also previously been criticised over another 2016 deal involving Mr Gupta, where he bought an aluminium smelter in Lochaber.

Ministers offered Mr Gupta guarantees totalling £586m as part of the deal, a sum opposition MSPs have called "jaw-dropping". The government stressed that the guarantee had not been called upon.

The Scottish Lib Dems said the latest admission was further evidence of "amateur hour" in government.

MSP Willie Rennie said: "I know the minister wishes nothing will go wrong, but he needs to be frank about the potential consequences. He must urgently clarify if this will have any impact on the deal or the jobs in Lanarkshire."