Bifab, the Offshore Wind Sector and Scottish Supply Chain Published in Scotland by the Scottish Parliamentary Corporate Body
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Published 22 January 2021 SP Paper 911 1st Report, 2021 (Session 5) Economy, Energy and Fair Work Committee Comataidh Eaconamaidh, Lùth is Obair Chothromach BiFab, the offshore wind sector and Scottish supply chain Published in Scotland by the Scottish Parliamentary Corporate Body. All documents are available on the Scottish For information on the Scottish Parliament contact Parliament website at: Public Information on: http://www.parliament.scot/abouttheparliament/ Telephone: 0131 348 5000 91279.aspx Textphone: 0800 092 7100 Email: [email protected] © Parliamentary copyright. Scottish Parliament Corporate Body The Scottish Parliament's copyright policy can be found on the website — www.parliament.scot Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) Contents Executive Summary _____________________________________________________1 Membership changes ____________________________________________________7 Introduction ____________________________________________________________8 Background to the Committee's inquiry _____________________________________9 Policy background _____________________________________________________ 11 BiFab background and timeline ___________________________________________13 Investment ___________________________________________________________15 Guarantees_________________________________________________________17 State Aid___________________________________________________________20 UK Competition Law__________________________________________________24 Enterprise Agency investment __________________________________________25 Role of developers in the local supply chain _______________________________27 Competition for contracts ______________________________________________30 Investment in Infrastructure ____________________________________________31 Contracts for Difference _________________________________________________33 Supply Chain Plans ____________________________________________________36 ScotWind leases and Supply Chain Development Statements (SCDS) ___________39 Environmental and fair work considerations _________________________________42 Strategy ______________________________________________________________44 Scottish Offshore Wind Energy Council and joint working group__________________45 Floating technology ____________________________________________________47 Employment opportunities _______________________________________________48 Annex A - Minutes of Meetings ___________________________________________51 Annex B – Correspondence ______________________________________________54 Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) Economy, Energy and Fair Work Committee Remit: To consider and report on economy and fair work matters falling within the responsibilities of the Cabinet Secretary for Economy, Fair Work and Culture; matters relating to the digital economy within the responsibilities of the Cabinet Secretary for Finance, and matters relating to energy falling within the responsibilities of the Minister for Energy, Connectivity and the Islands. [email protected] 0131 348 5403 Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) Committee Membership Convener Deputy Convener Gordon Lindhurst Willie Coffey Scottish Conservative Scottish National Party and Unionist Party Colin Beattie Maurice Golden Scottish National Party Scottish Conservative and Unionist Party Richard Lyle Gordon MacDonald Scottish National Party Scottish National Party Alex Rowley Graham Simpson Scottish Labour Scottish Conservative and Unionist Party Andy Wightman Independent Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) Executive Summary In this report, the Committee has made the following conclusions and recommendations: The Committee is extremely concerned that BiFab has been put into administration. This is a huge blow for workers and communities in Burntisland, Methil and Arnish. It is also a concerning reflection of the ability of the Scottish supply chain to benefit from the growth of offshore wind. The BiFab yards could play a key role in the Scottish supply chain; it is vital that the administrators find a buyer who can support the future of these sites. Investment The Committee notes that there are clear contradictions between the evidence presented by DF Barnes and the Scottish Government in the expected level of investment by both parties. This is particularly true of financial guarantees which will be explored later in the report. The Committee is extremely concerned by the lack of transparency in decision making. Both DF Barnes and the Scottish Government cited the pre-acquisition business plan as corroboration of their position, but neither shared this business plan with the Committee, despite repeated requests. The Committee agrees that the completion of ongoing BiFab contracts in 2017 was vital and required financial support. However, the Committee believes that there should have been agreement around securing the future of the company. For a number of reasons explored in this report, including financial viability and state aid rules, neither DF Barnes nor the Scottish Government felt able to provide the finance required to secure the vital contracts BiFab needed to avoid administration. The financial loss to the public purse of BiFab failing as a company demonstrates that greater accountability and transparency is needed. Guarantees State aid regulations were cited as the reason behind the Scottish Government's decision not to offer further investment or the financial assurances that would have enabled BiFab to secure the NnG contract. DF Barnes felt unable to provide this guarantee without a clear pipeline of work for BiFab. The Committee notes evidence that a contingent liability was agreed by the Finance Committee to allow the Scottish Government to provide the required guarantee for the 1 Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) NnG project. However, delays to the project meant that circumstances had changed and the Scottish Government decided that it could no longer offer the guarantee. Such contingent liabilities are considered in private meetings of the Finance Committee; this Committee has not had sight of the documentation supporting the contingent liability decision. The Committee believes that the contingent liability process should be reviewed to consider whether it can be more transparent. State Aid The Committee notes the concerns of DF Barnes and GMB Scotland suggesting that BiFab is disadvantaged when competing for contracts against European bidders who may have received financial assistance from their respective governments. The consequences of EU state aid regulations as understood and applied in the context of BiFab may have disadvantaged it to the benefit of state-owned/subsidised enterprises in Europe and the far and near East. It was suggested to the Committee that BiFab was not operating on a level playing field. As such, the Committee calls for any future subsidy regime in the UK to be cognisant of this issue and ensure that UK manufacturing jobs are given a fair opportunity to compete with low-wage economies. The UK and Scottish Governments must be creative and ambitious in their support of the local supply chain. The Committee also notes the opinion of Lord Davidson QC, that the Scottish Government could have waited until there was an outcome of the EU future relationship negotiations, before a final decision on continued financial assistance to BiFab was made. As a result of the end of the transition period, the UK has left the EU's state aid regime and the framework under which the Scottish Government made its decision is now no longer in place. However, there continues to be level playing field agreements in the Trade and Cooperation Agreement and it is unclear at this stage how these will be implemented. The Committee notes that the UK Parliament's Business, Energy and Industrial Strategy Committee is taking evidence on state aid in early 2021. The Committee recommends that its successor Committee conducts further work in this area as an early priority for Session 6. UK Competition Law The Committee acknowledges that discussions regarding how the internal market will operate are ongoing and asks the Scottish and UK Governments to share their understanding of how the UK's exit from the EU will impact on domestic competition principles in relation to specifying local content in supply chain plans and supply chain development statements. 2 Economy, Energy and Fair Work Committee BiFab, the offshore wind sector and Scottish supply chain, 1st Report, 2021 (Session 5) Enterprise Agency Investment The Committee believes that the enterprise agencies have a key role in ensuring that the Scottish supply chain is ready to take full advantage of future ScotWind Leasing opportunities. The Committee notes that projects are being undertaken by the enterprise agencies which aim to ensure that the Scottish supply chain is ready for future opportunities. Every effort must be made to strategically develop the Scottish supply chain to benefit from these contracts. Role of developers in the local supply chain Developers have an important role in supporting