A desperate throw of the dice

by DOUG COLLIE

Details of a desperate ploy by contractors commissioned to build a £21 million waste management centre for Scottish Borders Council which would have involved transporting all of the region's household refuse to facilities in North-east England for treatment are outlined in documents newly released under Freedom of Information.

It has also been disclosed that because so-called gas-to-engine technology, which councillors sanctioned for the plant in 2012 before it had even proved itself commercially, was proving so risky to potential project funders in 2014 that a switch to a steam-based system for converting garbage to energy was suggested as a last-ditch way of salvaging the crumbling venture.

In this chapter of the unmitigated tragedy for Borders taxpayers we deal with the remaining months of a contract moratorium, waved through by elected members so that their useless contractors New Earth Solutions Group [NESG] could continue to address long-term technological and financial issues which had dogged the Easter Langlee scheme from the outset.

Exchanges of emails between NESG, now being dissolved with debts estimated at £159 million, the council, and its legal advisers Brodies WS reveal the strained nature of the relationship between the parties during July and August 2014. Yet it would be another six months before the catastrophic contract was ripped up and the entire idea of building the treatment centre abandoned. SBC's recklessness and poor decision making cost millions of pounds.

A censored email from SBC Major Projects to NESG dated July 24 2014 warns: "The lack of information that is being provided by NES in relation to progress with the future funding of the Easter Langlee project and the role that NERR (Isle of Man-based New Earth Recycling & Renewables Fund) will play within the future project is concerning.

"We are five months into the moratorium process and no demonstrable progress has been made with this fundamental part of the moratorium".

However, it has since transpired that NERR was incapable of funding the job by that stage as the Fund's directors had suspended its activities months earlier with NESG owing NERR £102 million.

The council's strident message to New Earth management continues: "Without an evidence trail to support the work you are undertaking it is putting the project team in a very difficult position when briefing senior officers and members. It is essential that you are able to demonstrate work undertaken and a clear set of proposals for next steps at the meeting on August 22.

"It was extremely disappointing and a surprise to learn today that despite confirmation by NES on 23/5/2014 that the gasifier order would be committed to by NES (to allow the gasifier to be built by mid-August 2014) the order has not been placed and you are unable to confirm when the order will be placed.

"This decision by NES puts at risk the current operating permit process, as it has been indicated previously by SEPA that they will no longer elongate permit application processes, and it means that NES will almost certainly not be able to meet the outputs of the moratorium programme".

There had been ample evidence in other private correspondence between the parties that NES and its "funder" NERR were stringing SBC along even though the gasifier and pyrolysis technology planned for use at Galashiels remained unfit for purpose. With every day the contract remained in place the directors of NERR were able to continue collecting fees for promoting and administering the suspended Fund.

NES would spin another book of fables in a response to the council marked CONFIDENTIAL & COMMERCIALLY SENSITIVE on August 6 2014.

According to the near insolvent contractors: "The senior debt provider wants to invest directly at the start of our next projects. Scottish Borders has featured prominently in this conversation. However the existing funder would probably expect that the solution is a steam-based energy project as they have now got themselves comfortable with the proven nature of this technology.

"We now consider a steam-based project to be financially viable. The NES Group team are doing a review of the viability of delivering a steam solution to Scottish Borders".

Up to that point the gas-to-engine technology was preferred for the project although it had been continually misfiring and under-performing at a research and development site in the south of England.

A switch to steam at this late state in the day would have involved a further contract variation. But councillors had already shown their willingness to change horses in midstream in October 2012, abandoning a highly efficient conventional facility capable of diverting 80% of waste from landfill in favour of a total gamble with a form of treatment which did not work. It proved to be a fatal error of judgement.

This latest wheeze from NES even came with a sweetener in a bid to persuade the local authority to plump for the steam option.

NES wrote: "In recognition that the project has been delayed, NESG is currently reviewing the availability of emerging treatment capacity in North-east England. This could result in NES offering the council an interim treatment solution for all or part of its residual waste which could be transferred from the council's transfer stations to a third party treatment facility".

This latest special offer drew the following response on August 13 2014 from Edinburgh law firm Brodies - paid more than £670,000 by SBC for advice during the lifetime of the contract: "It is another matter, of course, whether whatever might be offered would save costs to the council in the interim compared to continuing disposal to landfill.

"We should be mindful that the purpose of the moratorium is to see if a clear way forward can be found for the final waste treatment solution. So we might not wish to pursue any interim solution unless and until satisfied following the moratorium that the final residual waste treatment solution is judged to be technically viable, fundable and likely to be implemented within a satisfactory timescale".

Two months after that was written a delegation from SBC returned from a two-day jaunt to the NES plant near Bristol convinced they were still on the right track after a "valuable and illuminating trip".

Councillors failed to spot £159 million debt

EXCLUSIVE by EWAN LAMB

The members of a 16-strong delegation from Scottish Borders Council who took part in a 'valuable and illuminating' fact finding mission to Bristol in October 2014 returned completely unaware the contractors they had selected for a £21 million public sector project in Galashiels were already £159 million in debt to banks, and the main source of further funding had already been cut off and suspended.

Last month's complete financial collapse of the New Earth Solutions Group (NESG) along with the allied New Earth Recycling & Renewables [Infrastructure] Fund (NERR) has been followed by devastating evidence from the Group's joint administrators in a damning report to creditors.

The company which was to have delivered a waste treatment solution for the Borders is to be dissolved while the linked Isle of Man-based NERR Fund is being liquidated.

It has also emerged that Duff & Phelps, NESG's administrators, are conducting statutory investigations into the role of NES's directors in the three years leading up to the Group's spectacular demise with checks also to be made for money laundering activities.

Borders council taxpayers have had to shell out at least £2.4 million as a direct result of the council's involvement with NES on a four-year venture which was finally abandoned last year. At the same time company shareholders and investors are understood to have lost millions more while at least one payment of £4 million from public funds to NES has also been written off.

The October 2014 trip was, according to SBC, vital to allow the delegation to conduct 'due diligence' and familiarise themselves with the technical detail of the contract. But the 75-page report from Duff & Phelps suggests the mission failed to uncover the catastrophic and near insolvent state of NES. By this time the Borders project was years behind schedule.

A report published by the Border Telegraph on October 13 2014 - after the Bristol trip - included the following contribution from a council spokesman: "A new delivery timetable is being agreed. When the modified operating permit [from SEPA] has been secured, further work on the integrated facility can be progressed and a revised construction date will be communicated to the community and stakeholders."

Council leader David Parker was quoted as saying the trip had been “valuable and illuminating”. He added: “The integrated WTF (waste treatment facility) is a really big deal for our council as it will transform the way we deal with our waste and help us comply with our zero waste obligations.

“It also involves a major investment, in partnership with NES, which requires councillors to carry out due diligence and, in that respect, the trip was necessary. I am satisfied after our visit that we are on the right track and confident that the WTF will be up and running before the 2019 contract deadline, hopefully by mid-2017.”

However, the report to creditors outlines a somewhat different scenario.

It confirms conclusively that In October 2014 NESG was carrying approximately £159 million of debt with £37 million due to the Banking Group (Co-op) and a staggering £102 million to the NERR Fund which was subordinated to the Co-op debt.

A further £20 million was owed to Australia's Macquarie Bank with a request for further funding. The report explains that funding from NERR had been suspended in 2014 and Co-op Bank had been requested to step in to provide financing.

The assets of the Group have been sold by Duff & Phelps in a deal with DM Opco Ltd for just £5.903 million. The sale included New Earth Solutions’ business intellectual property (the New Earth name) for £1, the customer list (£1), information technology (£1), stock (£1) and work in progress (£1).

Other significant bullet points from the report include:

*There are insufficient realisations to repay Co-op Bank in full under its security.

*As NERR’s security is subordinated to the Co-op’s debt there is no prospect of any distribution being made to NERR under its security.

*It is not anticipated that there will be any return to the non-preferential creditors of NES. A total of 266 businesses and individuals owed £9.169 million including: Trade & Expense creditors £4.202 million; inter-company loans £3.954 million; HM Revenue & Customs £1 million.

*The joint administrators recommend New Earth Solutions Group be dissolved.

The report goes on to state: "It is a statutory requirement that the joint administrators provide a report to the Secretary of State on the conduct of the directors in their management of the Group to determine their unfitness to act in such a role. If the Secretary of State then instigates directors’ disqualification proceedings, further time may be expended in providing supporting documents, witness statements etc.

"Full details of the investigations to be conducted cannot be disclosed at this stage in order to avoid prejudicing any potential recovery or action in this regard. Given the size of the Group’s operations, number of bank accounts and number of directors involved in the Group in the three years prior to the joint administrators’ appointment, time costs are estimated at £41,860 in both NESG and New Earth Solutions Facilities Management (NESFM). Activities will also include anti-money laundering and ethical checks costing £96,200 and £95,000."

Publication of the joint administrators' report and its direct reference to October 2014 re-shines the spotlight on SBC's cross-party visit to the New Earth Solutions untried and untested technical and financial arrangements which were supposed to make SBC the leading waste disposal authority in Scotland.

A detailed account of the trip and all paperwork associated with it should be made public immediately to allow council taxpayers to judge the standard of 'due diligence' achieved on a visit which also cost thousands of pounds to carry out. If elected members were unaware of the alarmingly negative facts and figures set out above then they patently failed in their duty.

Council should have axed Borders waste contract 15 months sooner

EXCLUSIVE by DOUGLAS SHEPHERD

Members of Scottish Borders Council should be made to explain in full why they granted a cash-strapped firm of waste treatment contractors a 15-month stay of execution to work on a worthless public sector project, allowing expenditure to escalate while funding and technological issues could not be solved, according to an industry insider.

Another collection of confidential correspondence between the council, New Earth Solutions Group [NES] and various consultants commissioned by the local authority spanning the period December 2013 to August 2014 provides yet more damning evidence that the entire £21 million Easter Langlee waste treatment contract was in complete disarray with no sign of any worthwhile progress.

The email trail also suggests SBC was fobbed off with excuses and offers of temporary solutions as the technology tests continued to disappoint and malfunction.

The files released under Freedom of Information show that in late 2013 NES had indicated in a letter to SBC a potential two year delay to the project while a demonstrator facility was built at the company's Canford site in the south of England. This would have entailed a revised construction programme at the Galashiels site with a new start-up date given as July 2017.

A redacted email from Nevin Associates, the council's financial advisers, dated December 3rd 2013 states: "To some extent the information in the November report has been overtaken by events, and in particular NES's advice that they will not now be in a position to commence the construction of the advanced thermal treatment [ATT] facility until June 2016, i.e. more than two years later than the originally scheduled date."

The censored report had revealed that the technology trial starting on November 17 stopped after - hours when 'the fuel that forms the - and in order to prevent significant damage to the plant, the plant was shut down'.

According to Nevin: "This may have been the final incident that convinced NES to come clean and admit that there was no chance of implementing NEAT [the brand name for their unproven technology] on a commercial scale in 2014."

The council is then told: "The revised programme indicates that the detailed design of the Canford project will be completed by April 2014, and construction of the Canford demonstration facility will commence in July 2014. The facility itself will, on this programme, only become operational in July 2015, and revised schedule for the Easter Langlee facility - i.e. start on site in June 2016 - implicitly assumes that there will be no significant problems at Canford. If there are, then one could anticipate further delays, or even cancellations, of the Easter Langlee ATT facility".

But it seems that despite even that stark warning flagging up further costly delays, councillors were able to sanction a six-month contract moratorium in February 2014 to give NES even more time to tackle the long standing issues. And the contract was not finally abandoned until February 2015 by which time council taxpayers were at least £2.4 million worse off.

Followers of the fiasco will recall that the council signed up for the useless form of ATT in October 2012 thinking they would become leaders in the field of waste disposal in Scotland, so perhaps a decision to withdraw from the contract barelya year later might have damaged them politically.

So what did in fact happen while the moratorium was in place? Virtually nothing, it would appear.

SLR Consulting, SBC's technology consultants, reported on April 22 2014: "We are struggling a little to understand the explanation from NES regarding the difficulties with testing. Once again our feeling is that NES continues to fire fight, dealing with each individual issue in isolation rather than considering the overall impact on plant operation."

In a further message dated May 30 2014 SLR wrote: "CANFORD GASIFIER AND R&D PROGRESS - We would anticipate seeing a thorough and continuous programme of trial and test with a series of upgrades and modifications engineered into the schedule, and then a break to accommodate a redesign for installation of the new facility.

"Instead NES appear to be pushing on without any clear plan and without really being certain of what they need to have in place and without making much concession to the fact they are unsure of what they will need".

When Not Just Sheep & Rugby showed the latest releases to one expert observer his response was strongly critical of the way the council had dealt with New Earth Solutions Group.

He told us: "The technical problems have not been resolved to this day, and were not going to be resolved in six months! Councillors should have known the highly experimental nature of the technology they were being asked to back.

"They should have been informed by independent experts that they were deciding to gamble with public money - and that the odds were against them (and the pay off if they won was not all that great). SBC should have been well ware that the technology in which they were investing public money had never been used for a mixed waste feedstock as was proposed. Why were they even considering a technology that had not been demonstrated to work?

"Led up the garden path? Sounds more like they were shuffled into a fancy limousine by a bunch of thugs who work for the big boss".

The notion that they were told that "NES appear to be pushing on without any clear plan and without really being certain of what they need to have in place and without making much concession to the fact they are unsure of what they will need" and yet SBC did not abandon the project then and there is rather damning."

Further evidence from the moratorium to follow......

Council contractors wanted independent regulator pressurised

EXCLUSIVE by DOUG COLLIE

A firm of waste treatment contractors working for Scottish Borders Council wanted Government agencies in Scotland to browbeat the national environmental regulator in a bid to nullify serious issues over the granting of an operating certificate.

Details of the 'outrageous' strategy, which was hatched in 2013, together with the subsequent strongly worded slap-downs from the local authority and its advisors have been disclosed in documentation released under Freedom of Information.

New Earth Solutions (Scottish Borders) [NES], the company specifically set up to deliver the £21 million Advanced Thermal Technology [ATT] plant at Easter Langlee, Galashiels, applied to the fiercely independent Scottish Environment Protection Agency [SEPA] in May 2013 for a variation to the so-called Pollution Prevention and Control [PPC] permit required to operate the plant.

It was originally hoped to have the PPC signed off by October 2013. But in fact there were so many unresolved issues with the technology to be installed in the Borders treatment centre that SEPA had still not issued the necessary paperwork by February 2015 when council and contractor abandoned the project with a combined financial loss of at least £4 million.

In what appears to be a shockingly frank email to the council in September 2013, NES wrote: "As SBC is aware, we disagree with SEPA in a number of areas relating to their need for certain data in order to process the PPC.

"Now we are through the 'difficult' part of the project (i.e. the planning application), as discussed at the previous meeting, we may need SBC's assistance with lobbying through Scottish Government to bring pressure to bear on SEPA. We met with Zero Waste Scotland [ZWS] at the RWM event [an annual resource efficiency and waste management exhibition held in Birmingham] and expressed frustration with SEPA's approach and we will be following up on this initial contact".

NES also told the council: "We believe that SEPA's likely requirements on data may exceed what the regulations require", going on to suggest that "if SEPA is not satisfied with the data we do provide, then we will have to argue the point with them and it is on this point that the wider assistance of SBC may be required".

At that time the Easter Langlee technical systems being 'road tested' by NES at their sister plants in Canford and Avonmouth were frequently misfiring. On occasions the machinery had to be shut down to avoid serious damage to the various parts while mention is also made of equipment breakages and the need for adjustments by skilled engineers.

Despite all of that NES managers clearly thought the Borders permit should be nodded through by SEPA.

Commenting on the proposed challenge to SEPA's authority, consultants Nevin Associates told SBC: "I'm not sure whether such a confrontational approach is well advised. An alternative is for the three parties - the regulator, the contractor and ourselves as client - to participate in a round table meeting to agree a pragmatic route forward to meeting SEPA's concerns regarding emissions and the air quality impact of the technology."

The Nevin Associates message adds: "My suspicion is that NES's reluctance [to meet SEPA's demands] is because their thermal treatment technology is not yet sufficiently developed.

"The ability of the plant to run continuously is now only due to be tested during the week commencing October 21st 2013, which is well behind schedule. NES seek to lay the blame for this on SEPA, commenting that offices have been unavailable to discuss the application.

"I suspect this is somewhat disingenuous, and that the real reason is that NES's own technology trials are progressing more slowly than anticipated".

The same consultant goes on to say that NES must 'come clean' regarding the exact nature of the technological issues that they are seeking to overcome.

He added: "I just feel at the moment that we are suffering a little from the 'mushroom syndrome', with NES being somewhat disingenuous in seeking to apportion blame for the delay to SEPA. This may be a defensive mechanism on their part, to avoid the risk that we can refer to the legal provisions of the contract to claim damages from them in the event of a significant delay".

In a thinly veiled rebuke to NES over its strident posturing against SEPA, SBC's Department of Environment & Infrastructure warned: "In relation to your soundings to ZWS regarding SEPA's performance, can you please reframe for further discussion until the situation has been discussed with the council.

"We do not believe that representations to another government body [Quango] on the performance of a regulatory body reflects well on us - NES are effectively representing the council to deliver the project - and could cause the council future wider issues with SEPA if they take exception to the complaint route that has been taken.

"As discussed at the last contracts meeting, if NES feel that SEPA's performance needs to be challenged then a meeting is to be convened with the council to discuss the issue, the risks, the approach and who is best placed to take it forward".

After studying the newly released paperwork, a waste industry expert told us: "Quite outrageous and totally unprofessional on New Earth's part. To even contemplate asking any government department to heap pressure on an agency like SEPA beggars belief. I sincerely hope ZWS also told the company to get lost".

To be continued...

.

When a HOUSE cost less than a pint of beer!

EWAN LAMB on the 25th anniversary of the Borders 'sale of the century'

A quarter of a century ago this month the finishing touches were being applied to a sensational deal which would see 120 publicly owned rented homes in Galashiels being sold to a housing association for the equally sensational price of £1 apiece. At that time a pint of lager cost £1.35p.

It was to become known as a veritable Sale of the Century accompanied by a huge dose of political fall-out, allegations of "grubby, underhand dealings" and claims that valuable assets had changed hands for sweetie money to serve the ends of the Conservative Government's housing policies.

Those 120 houses and flats - some with gardens - were situated in the Langlee area of town, in Woodstock Road, Woodstock Avenue, Langlee Drive, Langlee Road, Langlee Avenue, Kenilworth Avenue, Marmion Road and Talisman Avenue. But the £1 selling price remained a closely guarded secret until the transactions showed up on the national property register.

In all 1,190 tenanted homes in six Borders towns were targeted for sell off by Scottish Homes, the government quango established as a national housing agency in 1989.

The open market value of the houses was estimated to be £35 million, but because they came complete with sitting tenants, and many of them required sizeable financial investment they eventually went for a knockdown price. It was the first housing stock transfer of its type north of the border.

The saga began in 1988 when the newly formed Waverley Housing Trust under the chairmanship of former Scottish Office minister Michael Ancram was awarded the management contract for the hundreds of public sector dwellings. They had previously been factored by the four housing authorities in the Scottish Borders at a price which was below that of Waverley's bid.

Another Scottish minister Lord James Douglas-Hamilton assured the House of Commons in November 1988: "The proposed arrangement between the Scottish Special Housing Association and Waverley Housing Trust does not include a commitment on future purchase of the housing stock. Any such proposals would require the consent of the Secretary of State for Scotland".

But not long after that Commons debate the wheels were set in motion for the sale of the houses to Waverley with Scottish Secretary Ian Lang eventually sanctioning the deal in 1992.

As the records show, the properties carried individual price tags ranging from £1 to £12,131 resulting in an average transaction of just £4,201 and a total yield to Scottish Homes of £5 million.

The sense of outrage among local councilors and politicians intensified after it emerged that identical houses to those sold for £1 but in different ownership were valued at up to £30,000 each. And in 1992, only weeks before the deal was concluded, Scottish Homes sold a house on Kenilworth Avenue to a sitting tenant for £13,200 after the full 50% discount available to tenants was deducted.

The bundle of £1 houses had, in fact, been given negative valuations of minus £622 each, apparently because of their poor state of repair, the presence of tenants and the need to maintain the houses for social rent.

Charlie Anderson, the chief executive of Ettrick & Lauderdale District Council at the time declared: "I think people will find it absolutely astonishing that assets which were paid for by the public purse should be handed over to a private company for sweetie money".

The matter became the subject of a National Audit Office investigation in 1994 after irate MPs including the then David Steel and John Home Robertson raised questions in the Commons.

Following the publication of a Public Accounts Committee report Labour MP Michael Connarty (Falkirk East) claimed: "It is not right that a Government should do deals in such dubious circumstances.

"The report says that there were six meetings between senior Government officials and the people who were to become Waverley Housing Association at which no minutes were taken. It was clearly a little behind-the-door arrangement - and a lucrative one for the people who set up Waverley."

Today, houses in the twenty shilling streets of Wester Langlee South regularly change hands for £60,000 which must represent a phenomenal rate of inflation over 25 years. Even in 2002, a decade after the £1-a-time properties found new owners prices of between £30,000 and £40,000 were being achieved on Woodstock Avenue.

There is no doubt that the wheeling and dealing on the Borders housing front in 1991/2 sparked a revolution in Scotland's social rented housing sector.

As Michael Ancram observed when Waverley was handed the Scottish Homes management contract in April 1989: "I have been saddened by the irrationality of some of the reaction after this pioneering venture arrived on the scene. I forecast that many more alternative landlords will be established within a few years".

Disastrous waste treatment contract: details made public

EXCLUSIVE by DOUG COLLIE

A file containing over 190 documents, which has been released under Freedom of Information, reveals how the contractors for the failed Scottish Borders waste treatment facility were subjected to withering criticism from consultants and council officials as the multi-million pound project slipped further and further behind schedule.

Not Just Sheep & Rugby hopes to provide readers with some of the contents of emails, reports and written updates over coming weeks in an effort to expose exactly what went on behind the scenes as New Earth Solutions Group, the firm appointed by Scottish Borders Council to build the treatment plant at Easter Langlee, failed to deliver over a four year period. But as was the case with previous releases the documentation has been liberally redacted (censored).

A series of insurmountable technological and financial issues resulted in the chosen solution for waste management in the Borders being scrapped after SBC spent over £2.4 million of taxpayers' money for no return.

But the newly released papers appear to show the Easter Langlee project was dogged by problems from early 2013 - shortly after councillors decided to adjust the contract with NES to include untried technology - until the two parties gave up and parted company in February 2015.

The council has been extremely reluctant to divulge more than the scantest details of their costly association with NES, a group which plunged into administration last month. And the offshore fund which was supposed to finance the Borders development had provisional liquidators appointed a few days later.

Now, correspondence linked to monthly ARE (All Reasonable Endeavours) reports in which NES was supposed to reassure the local authority they were doing everything possible to overcome outstanding issues, offers a much fuller account of the fiasco.

Elected members took the decision in October 2012 not to proceed with the conventional Mechanical Biological Treatment (MBT) system planned for Galashiels, and instead voted for a so-called Deed of Variation to the contract with NES to include the Group's misfiring version of Advanced Thermal Technology (ATT) which was untried and untested commercially.

However, issues and delays had obviously surfaced barely six months later when the company received a strongly worded letter from SBC. In it, the authority wrote: "The Council has previously noted its concern that the ATT development work timetable has slipped and continues to slip, and that the delays to that development work do not appear to be being mitigated.

"It is concerning that there is a further delay in this process and that it appears inevitable that a further request for extension of time will require to be submitted to the council."

The letter, dated May 2013, goes on to request a "realistic and achievable timetable and action plan". Yet the same outstanding problems were still present in early 2015.

A follow-up letter in June 2013 from SBC states: "SBC are aware that the development of any new technology is not without its problems. However, on review of the May ARE report the current issues are being treated as business as usual and there does not seem to be any urgency to take additional steps to make up time lost on the ATT development - no weekend working and large time lags between dependent tasks".

SBC's level of concern was such that they commissioned technology consultants SLR - the firm picked up fees totalling £184,000 for their project advice - to visit the New Earth Canford research facility in Dorset "to provide us with a health check of ATT development and an independent assessment of NES' performance".

One of the two main reasons for the Borders project's abysmal failure was the inability of Isle of Man-based New Earth Recycling & Renewables [Infrastructure] Fund (NERR) to finance the £21 million treatment centre. There are repeated references to NERR's apparent shortcomings and delay within the files, but all figures relating to the amount of cash actually in the fund have been blacked out.

In an item of correspondence also dated May 2013 the council is asking questions on funding and financial closure.. The message reads: "We have not received a detailed update on new subscriptions into NERR. Previous updates suggested a slowdown in the rate of new subscriptions."

The same subject is dealt with in an email to NES from SBC in July 2013. It states: "As NERR is the funder of last resort for the project it is critical that the council has an understanding of whether it will have sufficient funds to finance the project".

To be continued....

Infrastructure fund was 'bound to fail' before SBC signed up

EXCLUSIVE by DOUGLAS SHEPHERD

A financial planning expert on the other side of the world concluded in 2011 that the offshore fund chosen to deliver a waste treatment facility for the Scottish Borders was "rubbish" and should not be marketed to investors.

Wilfred Ling, who runs his own professional financial planning practice in Singapore was approached to market the entity but realised the New Earth Recycling & Renewables Fund [NERR] would fail BEFORE Scottish Borders Council even finalised their £80 million contract with New Earth Solutions Group and their funders NERR.

The council ended up paying two firms of consultants more than £146,000 for financial advice while NERR and NES were given generous concessions of time after failing repeatedly to fund the £21 million Easter Langlee waste treatment plant.The abject failure of the scheme forced the council to tear up the contract and write off £2.4 million of taxpayers’ cash.

Last month joint provisional liquidators were appointed to the Isle of Man-based fund after New Earth Solutions plunged into administration with massive debts.

In a devastating article posted on his website Mr. Ling says he is already convinced that investors who between them staked tens of millions in NERR will get absolutely nothing back after the liquidation process.

But as Not Just Sheep & Rugby revealed recently, the directors of Premier Group (Isle of Man) who managed and promoted NERR collected £24 million in various types of fees between 2009 and 2014 while the Scottish Borders contract was active.

Mr.Ling writes: "The New Earth fund invests in recycling facilities in the United Kingdom. We at IFA - his company - gave it the nickname the 'Rubbish Fund'". After a marketing agent contacted him and asked if he would market the fund he asked for and was given a financial statement as at January 31 2010.

Did anyone involved in the Easter Langlee project take the trouble to obtain a similar financial resume before deciding New Earth Solutions should be awarded the massive contract rather than rival bidders Shanks?

Says Mr. Ling: "I was concerned it was not profitable. What was worst was that its cash flow from operation was negative. The entire operation was financed by borrowing and new investors' monies."

Anticipating that Mr Ling would raise concerns, the agent emailed him in the following terms: "NESG [New Earth Solutions Group] is not profitable by design and is concentrating on investing for the future. Very important; the fund performance does not depend on profitability at group level".

According to Mr. Ling he almost fainted when he read that the investment was not profitable by design. "It was for this reason that I was convinced the investment will fail". Since creditors had to be repaid before shareholders, shareholders eventually are not going to get anything once liabilities exceed assets of the business.

Last month Mr. Ling ran another financial check on the unregulated New Earth funds as the liquidation seemed to imply that investors may suffer 100% losses.

The New Earth Solutions Group Ltd accounts showed the business was insolvent. And its cash flow from operations is still in the red after four years.

New Earth Facilities Management Ltd is also insolvent, says Mr. Ling. It made a significant loss in 2015.

His article continues: "So it looks like it is true that investors are not going to get anything back and I can safely conclude that shareholders should get back £0. Strangely the factsheet as of March 2015 shows that the fund was valued at £1.685 per unit".

He concludes: "1 A fund can have positive NAV (net asset value) when the underlying investments are insolvent. This is probably true for unregulated funds like this one.

"2 This, like many other investments marketed to Accredited Investors, was a total disaster".

"3 The Rubbish Fund lived up to its name".

So how could Scottish Borders Council embark on such a disastrous course of action in 2011 when they concluded their shambolic deal with NES/NERR? Perhaps they should have engaged Mr. Ling as their financial adviser rather than the highly expensive UK-based consultants who obviously failed to establish the true status of "The Rubbish Fund".

Spending on golden goodbyes up by 350% at SBC

DOUG COLLIE analyses council's annual accounts

The number and cost of exit packages for staff leaving Scottish Borders Council increased by 77.5% and 356% respectively in 2015/16 while 'savings' on frontline services added up to £7.8 million.

Those are just two of the contrasting financial trends included in SBC's annual accounts which were posted on the local authority's website at the weekend.

A total of 71 council workers were allowed to leave their jobs early compared to 40 in 2014/15. And the cost of those severance deals - SBC maintains each leaver represents substantial savings for the wage bill - totalled £2,234,000, up from expenditure amounting to £626,000 in the previous twelve month period.

One of the packages was worth £174,190 while two others exceeded £100,000 each and cost the local authority £261,880.

Despite repeated claims that the council tax freeze was making life nigh impossible for local government service delivery, and there was no fat left to cut from budgets, SBC's actual revenue spending outturn in the financial year 2015/16 came to £260.2 million, representing a net under spend of £1.284 million.

There was also an under spend of £800,000 on the £45 million capital budget. All of that means at March 31st this year the council has a General Fund Reserve Balance of £23.2 million, an increase of no less than £4.2 million from the 2015 balance of £19 million.

The accounts show that overall, savings of £7.825 million were delivered over the year.

According to the 111-page document: "The operating environment for the Council continues to be very challenging with financial and economic influences such as increasing demands on services, reducing Scottish Government funding, low interest rates and cost pressures from pay and price inflation all affecting the Council's finances. The Council, despite these challenges, remains financially sound and well placed to serve the people of the Scottish Borders in the future".

However, the document also sets out the authority's level of external debt and its onerous PFI [Private Finance Initiative] commitments over the coming 25 years. The costly PFI deal relates to the provision of three new secondary schools at Eyemouth, Duns and Earlston.

The Council's external debt stands at £175 million with no additional loans added to the portfolio in 2015/16. The average rate of interest paid on outstanding external debt was 6.5%. Interest payments on loans added up to £12.320 million, an increase on the 2014/15 figure of £11.806 million.

PFI payments accounted for £8.488 million last year. The total payable over 25 years will be £245.432 million, including interest of £37.428 million. On the face of it the Borders PFI arrangements do not represent value for money.

The accounts are bulging with lists of achievements and "Priorities for the Future". It is interesting to note that priorities in the section entitled Encouraging Sustainable Economic Growth includes the following statement: "Deliver the actions in the Borders Railway Blueprint, including a Central Borders Business Park, Great Tapestry of Scotland building, and inward investment activity".

It seems the tapestry project remains near the top of the SBC agenda despite doubts about the business case and widespread opposition from many council taxpayers.

Several contingent liabilities are built into the accounts. The document states: "There has been a European Court of Justice ruling relating to workers' annual leave payment entitlement. The financial implications of this judgement for Scottish Borders Council are unclear at present and therefore the Council, in agreement with our external auditors, have included this as a contingent liability in this years' annual accounts".

It is explained that the Council has agreed to act as guarantor for SB Cares and Live Borders - two arms length organisations set up by the local authority - with regards to their admission to the SBC Pension Fund. Should either of those entities be unable to meet their pension obligations the Council as guarantor would be liable to do so.

The accounts also show that during the year a claim was lodged against Capita PLC by Dumfries & Galloway Council on behalf of itself and SBC for additional expenditure incurred by both councils due to the delay in the rollout of broadband network and ICT infrastructure across the two regions.

One growth area worth mentioning is the amount spent on salaries for top earning employees, a budget which increased by 9.9% from £1,061,646 in 2014/2015 to £1,167,294 last year.The total remuneration for executives receiving more than £100,000 reads as follows:

Tracey Logan, chief executive - £127,437, including £1,092 for balance of counting officer fee for the Scottish independence referendum in 2014 and £2,784 for returning officer fee for the 2015 General Election.

Philip Barr, deputy chief executive - £20,960 + £83,840 paid by SB Cares for 80% secondment; Jeanette McDiarmid, deputy chief executive - £103,031.

Rob Dickson, corporate programme & services director - £111,251, including £2,276 for depute local returning officer fee for 2015 General Election. Compensation payments also made for annual leave not able to be taken due to emergency planning commitments.

Tory wrecking ball to cost Borders millions

CONTRIBUTED

So who will pick up the pieces and make good the negative financial fall-out from the EU referendum now that David Cameron has decided to throw in the towel and lead Brexiteer Boris Johnson seeks treatment for serious stab wounds inflicted by his good 'friend' Michael Gove?

After all Mr. Johnson told us time and time again during the campaign that the UK Government would make good any monetary losses brought about by an end to European largesse in the wake of a Leave vote. Cynics among you may have difficulty in believing such a glib promise from a shallow performer whose political career now lies in ruins.

Here in the Scottish Borders we've heard meaningless calls from business leaders and local politicians for a period of reflection even though Scotland voted overwhelmingly to retain membership of the European Union.

Surely the Conservative Government, whose leadership inflicted the referendum on us in a failed bid to settle internal Party squabbling and to quell the threat from the arrogant and objectionable Nigel Farage and his anti-Johnny Foreigner cohorts, should already be under pressure from areas like the Borders to guarantee levels of funding previously available from European sources.

The potential loss of funding for the local economy, for community schemes, for environmental improvements, and for agriculture adds up to a substantial sum. The Scottish Government can hardly be expected to fill the financial void having had its coffers raided year on year by the austerity-driven British Treasury.

No doubt the highly valued European Regional Development Fund [ERDF] and equally supportive European Social Fund [ESF] will cease to operate on Scottish soil once the nation is forced out of the EU along with the rest of the United Kingdom.

For Scotland, the 2014-2020 ERDF programme would have been worth £476,536,000 while the ESF would have brought in £464 million during the same time frame. A proportion of that money would have trickled down into Borders projects.

The latest allocations for the so-called Borders LEADER Fund for community groups and enterprise projects was worth £2 million with an additional £800,000 for a rural enterprise fund. Between 2007 and 2013 70 local projects benefitted as a direct result of EU financial assistance.

And in 2015 no fewer than 21,460 Scottish businesses - the largest proportion based in rural locations - collected Common Agricultural Payments worth £613 million. Even Mr. Johnson and his well-heeled mates will be hard pressed to make up those looming cash losses in the Scottish economy.

Access to a range of specialist EU funds will also dry up. So will the Tweed catchment be one of the first areas to suffer?

In a newly published annual report and accounts the Tweed Forum, which runs a number of environmentally beneficial projects throughout the Borders region and also on the River Till in North Northumberland, state: "One big achievement has been securing EU Interreg funding that will help support flood monitoring efforts over the next four years.

"Tweed Forum and the Scottish Government are part of a consortium including Netherlands, Germany, Sweden, Denmark and Belgium that will be participating in the Building with Nature project. This will establish 'catchment laboratories' to evaluate the contribution that restoration can make to flood alleviation."

In light of the recent flood events in the Borders, notably in Hawick and Peebles, this sounds like an important and valuable initiative. But now it looks as though all of the lobbying and groundwork may have been a waste of time.

An announcement in February explained: "The Scottish Government, Tweed Forum and SEPA have secured additional funding of €400,000 over 4 years from the EU North Sea Region’s Interreg project Building with Nature.

"This money will be used to improve and build resilience into the Eddleston Water project monitoring network, which helps us collect scientific evidence to support the implementation of natural flood management measures. It also helps us collect additional data to improve our understanding of the multiple benefits of natural flood management."

No doubt other equally valuable projects will suffer once Scotland cuts its ties with Brussels. Which is why we need hard talking now to mitigate the devastating impact the loss of European funding will have on our cash-strapped region.