Was New Earth Fund such a good bet?

WORLD EXCLUSIVE  - by DOUG COLLIE and EWAN LAMB

Dozens of investors from around the globe have formed a pressure group in a bid to rescue their cash from the offshore fund which was to have provided millions of pounds to build a new waste treatment plant for the Scottish Borders.

The New Earth Recycling & Renewables Fund (NERR), approved by Scottish Borders Council as the funding source for the new treatment facility at Easter Langlee, Galashiels, has been suspended since April 2014, leaving investors unable to access their money and "with a growing feeling of frustration and distress."

NERR had also had its listing suspended on the Channel Islands stock exchange in November 2013, over a year before the contract between SBC and New Earth Solutions Group had to be scrapped in February of this year. NES was subsequently unable to deliver the waste plant because of funding and technological issues.

Some very serious questions are now being asked about the "high risk" NERR fund which is controlled by Isle of Man based Premier Group. Could the fund's apparent difficulties be the reason for the complete collapse of the Borders' waste strategy which was inextricably linked to NES?

Not Just Sheep & Rugby can also report that serious doubts were being expressed about NERR as far back as July 2008 when potential investors were warned: "This is a fund that is very expensive, that has few, if any, of the benefits of a professionally managed, diversified portfolio, and which appears to be subject to a high degree of risk, including granting unsecured credit to a tiny company on what appear to be fairly generous terms."

David Whitaker one of the directors of Premier, which also has links to businesses in the tax haven of British Virgin Islands, was also on the Board of New Earth Solutions (Scottish Borders) Ltd, the SBC's contractors.

It is not known whether Scottish Borders Council or its financial advisers were aware of the potential risks associated with NERR while they were negotiating a £65 million contract with NES between 2008 and 2011. But a confidential report to councillors in March 2011 which recommended approval for the original deal names NERR as the funder for the Galashiels project.

A second report, considered in private in October 2012 when councillors agreed to radically alter the contract, gives this assurance: "Finance and the Council's External Financial Advisor have been involved in evaluating the options and scenarios throughout the discussions with NES. This has ensured detailed information is available in respect of the financial implications of the recommendations."

Further on in the document councillors are told: "The project team have utilised the expertise of external consultants for financial, legal and procurement advice throughout these negotiations with NES. It is standard practice for a local authority to utilise external expertise to reduce the legal and financial risk in a project of this scale.

"The external consultants that have advised the project team throughout these contract negotiations were involved throughout the competitive dialogue, evaluation, and contract award procedures and this continuity has benefitted the Council through this process".

The cost of that advice was considerable, as a Freedom of Information request revealed recently. SBC paid Nevin Associates £143,401 for financial counselling, technical assistance from SLR, a global organisation, cost £184,345, project management advice was supplied by SOLACE and Practicus at a cost of £92,475 and £116,042 respectively while the expert legal service from Edinburgh law firm Brodies resulted in a bill for £679,316. The end result is a nil return for massive expenditure of public money.

As the Council's disastrous involvement with NES neared its financially catastrophic conclusion the investors in NERR were becoming increasingly concerned about their money.

Now a special pressure group has been formed by the ExPat Investment Club (EPIC) to "seek speedy financial redress" for its members.

When the fund was launched in 2008 to invest in UK recycling facilities profits were to be derived from five income streams including capital appreciation on the underlying value of long-term local authority contracts. The Borders contract with NES was to last 24 years, but was terminated after just four years.

According to EPIC the warnings issued by sceptical investment commentators failed to deter a number of commission-hungry Independent Financial Advisors who energetically promoted NERR. The promotions led Premier Group to launch fund variants in US Dollars, Euros and Singapore Dollars between 2010 and 2012 before David Whitaker was able to announce in 2012 that NERR had reached £100 million in asset value.

But by 2014 the fund was suspended and that suspension remains in place to this day. EPIC blames a lack of diversity for NERR's problems - in effect the fund's investors were making an outright unsecured loan to New Earth Solutions.

Details of the pressure group have been posted on a website called  financialdisasters.com which declares: "No two ways about it: granting unsecured credit to a small company on fairly generous terms carries high risk. High risk ventures invariably raise liquidity concerns - and this has come to haunt here."

In a paragraph headed 'Enough is enough', EPIC say: "For many investors who want exit, this seemingly endless situation has gone on long enough. They want to realise their capital and do other things."

It seems the Borders waste treatment project was unable to withstand high risk technology and even higher risk financial obstacles both of which were brushed aside by SBC's elected members and senior officers.Yet no-one in authority believes there is a need for a wide ranging independent inquiry.