The Scottish government has been forced to disclose that the value of the taxpayer guarantee it provided to metals magnate Sanjeev Gupta’s business was £586m, following a near two-year freedom of information battle with the Financial Times.
The amount was the total gross guarantee provided when Gupta’s GFG Alliance bought an aluminium smelter in Lochaber, near Fort William, and two nearby hydropower plants from Rio Tinto in 2016.
The agreement involved the Scottish government guaranteeing 25 years of power purchases by Sanjeev Gupta’s company from another business owned by his father. The now-collapsed finance company Greensill Capital was then able to transform this contract into £295m of debt, which carried the same credit rating as UK sovereign bonds, funding Gupta’s acquisition of the last remaining aluminium smelter in Britain.
Gupta, once hailed the “saviour of steel” because of his promises of resurrecting moribund metals plants, gathered widespread support in Holyrood for his plans to buy the smelter.
But his business was plunged into crisis following Greensill’s collapse in March. This month the FT reported that French authorities had opened an investigation into Gupta’s business empire over alleged “misuse of corporate assets” and “money laundering”.
The FT first requested disclosure of the size of the guarantee in February 2020 but the Scottish government declined, citing commercial confidentiality, and also turned down the FT’s appeal.
The ministers, who had argued that revealing the size of the guarantee could disadvantage GFG and be used to help calculate commercially sensitive information, were eventually overruled by the Scottish Information Commissioner in September 2021.
While Reuters first reported in 2019 that the taxpayer’s gross liability stood at about £575m, this is the first time the Scottish government has disclosed the precise amount.
The transaction was the first significant deal Greensill carried out for Gupta, beginning a string of debt-fuelled acquisitions that transformed the commodities trader into a big industrialist claiming to employ 35,000 people around the world. But the level of exposure Greensill built up to Gupta’s GFG Alliance was a key factor in its collapse, as the metals conglomerate started to default on more than $5bn of debt it had borrowed from the supply-chain finance company.
The Scottish government provided its guarantee, which covered annual amounts varying between £14m and £32m, in return for a fee. That fee had been valued in the government’s accounts at £21.4m, but was later written down to zero and a £33m provision was created because of potential exposure to default.
The Scottish government also revealed in its response to the FT that the net present value of the remaining guaranteed payments is now £285.9m.
It said the smelter had fulfilled all of its power purchase and guarantee fee obligations, and there had been no call against the government guarantee. It also said the government had taken security over the smelter, the Fort William hydroelectric power station and “substantial land holdings”.
Gupta said in 2016 the investment could create 2,000 new jobs in the Lochaber region, but the Scottish government disclosed this year that fewer than 50 extra people had been hired.
GFG Alliance said: “The Lochaber aluminium smelter is a profitable operation, and GFG Alliance’s commitment to invest in a new recycling and aluminium billet plant there will secure the future of the operations, create new high quality employment in the area and provide opportunities for the local supply chain.”
GFG unsuccessfully lobbied the Scottish government for a second guarantee over the course of 2017 and 2018. An August 2017 briefing document showed ministers were mindful of the “large scale” of the government’s existing exposure to GFG, as well as the potential to become “overexposed” to a business on an “aggressive expansion drive”.