THE former managers of the shipyard at the centre of a ferry building fiasco have accused the Scottish Government of having no serious intention of leaving it in private ownership while being warned nationalisation would be subject to EU state aid laws.
They accuse ministers of forcing it into insolvency by rejecting a plan that would avoid any state aid claim, save the taxpayer at least £120m and prevent the costs of building two key ferries soaring to over £300m.
The Scottish Government deny the accusations.
The development comes after the Herald on Sunday revealed the government has faced questions about failing to notify the EU about nationalising Ferguson Marine Engineering Limited (FMEL) after being found to have given £50m of "illegal state aid" to two airports.
Illegal state aid was found to have been made to Sumburgh Airport on Shetland and Inverness Airport after both received taxpayer support that had not been approved by the European Commission.
The EU has previously confirmed it was not notified of the state takeover or the issuing of two commercial loans to FMEL in Port Glasgow totalling £45m before the yard fell into administration and then public ownership.
It has now been revealed that a matter of days before FMEL fell into administration, its counsel, in an analysis forwarded to ministers warned that nationalisation would "still be subject to state aid law".
It said: "Nationalisation is not a mechanism for circumventing [EU] state aid rules, which apply equally to both privately and publicly owned undertakings."
The intent of EU state aid rules is to avoid financial assistance given by a government that favours a certain company or commercial group and has the potential to distort market competition.
The Scottish Government began the process of taking control of the last civilian shipyard on the Clyde in August as it went under because of the soaring costs of a contract with Caledonian Maritime Assets Ltd (CMAL), the taxpayer-funded company which owns ferries and other infrastructure used by publicly owned operator CalMac.
A £97 million project for two ferries has so far shown no sign yet of being launched.
In the latest analysis of what happened, the former management of the yard have demanded that ministers publish the full cost to the public of nationalisation saying: "The figure must be fully scrutinized."
They say that ministers declined a restructuring solution that "does not involve the presence of state aid" that would have seen the vessels completed for far less than they now cost.
In March, last year, FMEL says the costs to build the ferries had soared from £97m to over £195m. Now the former management believe that that has now soared to over £300m.
They claim a conservative estimate of the extra costs to the public after administration total £120m and include the loss of the recovery of £45m in loans.
"There was never any serious intention to leave the yard in private ownership," the team say.
"Since it was taken into public ownership, the entire senior design and management team have been removed."
A redacted email to FMEL a matter of days before it went into administration seen by the Herald signed off by the finance secretary admitted the two sides held "opposing view on state aid and procurement compliance" and suggested the FMEL proposal would be "unlawful".
The executives have said a "fully independent public inquiry preferably led by a judge and with power to compel testimony and recovery documents" is required to establish the reasons for the decisions taken which are "inexplicable on commercial or any other grounds".
One of the ferries being built by the now publicly owned FMEL, MV Glen Sannox – which is destined for the Arran-Ardrossan route – was due to enter service in the summer of 2018, but construction delays meant that was put back.
The second vessel, known only as Hull 802, was supposed to be delivered to CalMac in the autumn of 2018 for use on the Uig-Lochmaddy-Tarbert triangle, but that has also been held up.
The previous Ferguson Marine owner, tycoon Jim McColl, who rescued the yard when it went bust in 2014, blamed repeated design changes by Caledonian Maritime Assets Ltd (CMAL), the Scottish Government-controlled taxpayer-funded company which owns ferries for the issues in building the vessels for operator CalMac, which is also publicly-owned.
In a powerful but heavily redacted response to claims emerging from a parliamentary committee inquiry the former executive team said: "We have been constantly frustrated, and at time bewildered, by the behaviour and actions of both the Scottish Government and, in particular, CMAL."
They revealed that two months before the company fell into administration, a proposal was made that would see the Scottish Government provide a 50% share in the additional costs to the complete the ferries but this was "unbelievably" turned down.
"In our view the Scottish Government did not save this yard from administration, they forced it into administration by repeatedly refusing to instruct CMAL to engage in reasonable requests for mediation, an expert witness process or arbitration to address the significant cost pressures being put on the yard - even when recommended by their own appointed independent expert," said the former management.
They contended that the Scottish Government-appointed independent expert Luke van Beek made it clear that the difficulties were not of FMEL's making and recommended arbitration to resolve matters.
And they claimed that key documents have been withheld from the public arena "under the guise of commercial sensitivity and [data protection]."
They say key individuals have been let go after the company went into administration and that no project management meetings have been held for five to six months.
"In our view a significant effort will now be required to re-establish an effective project management and control system, adding to the delay and additional costs," they warned.
"In our view, there has been a void following government intervention, where there has been little attention to the vessels or the yard, resulting in deterioration of both vessels and the housekeeping of the yard, which clearly is now having to be addressed."
The executives said since the Scottish Government began taking control of the last civilian shipyard on the Clyde in August motivation levels in the yard have "dropped significantly" and that it could "take years to recover, if it recovers at all to previous levels".
The group's timeline of events shows that Mr McColl twice appealed to the First Minister to intervene, the first time in a meeting on May 31, 2017.
After a request for a second meeting, a call was arranged for April 3, 2018, which led to an 'all parties' meeting to include FMEL, CMAL, Transport Scotland and the Scottish Government to discuss the soaring ferry costs.
By August, 2018, FMEL felt that CMAL had refused to engage in any meaningful discussion on dispute resolution and the accused the Scottish Government of a failure to adopt a leadership role to intervene.
And in conclusion the FMEL executives said: "Despite a formal complaint sent to the First Minister over two years ago, two detailed reports conducted by highly qualified, impartial experts and regular feedback from an expert appointed by the Scottish Government... we believe that the Scottish Government has consistently failed as owners of CMAL to take a responsible leadership role and insist on the appointment of a suitably qualified expert to resolve the dispute.
"With the Scottish Government now having nationalised the shipyard, we believe that FMEL will be unable to fully exploit the diverse range of opportunities created by the previous highly talented management team. In our view, this a huge missed opportunity for the revival of commercial shipbuilding in Scotland and a huge blow to the growth of the local economy and the wider Inverclyde community.
"We believe that there were various options to 'save the yard and the jobs' and this should have been done in a way that minimised the cost to the public purse and maximised the benefit to the workforce and the local community.
"We remain confident in the belief that after a thorough inquiry process, FMEL will be vindicated in its management of this contract and its claim for additional costs. In our view, the Scottish people, particularly island communities, deserve better than the way this whole sorry affair has been handled."
Glen Sannox was 'launched' on November 21, 2017 by the First Minister Nicola Sturgeon
The Herald on Sunday revealed the European Commission had found that Scottish Government support to two airports was illegal aid through the Highland and Islands Airports Limited (HIAL) company that it owns.
Ministers had told the commission it considered Inverness, which carried over 600,000 passengers a year, and Sumburgh, which carries over 300,000, would close to scheduled passenger services without public funding.
But the European Commission found that more than £20m provided to Inverness between 2012 and 2017, and £35.4m to Sumburgh were "illegal state aid" in breach of the Treaty on the Functioning of the European Union (TFEU), which states that aid measures must not be put into effect before it had authorised it.
The commission also found that HIAL, the state operator of both airports, was "not selected by a public procurement procedure for the public service obligations it was entrusted with" and did not comply with its so-called Altmark Criterion which aims to ensure competition and transparency.
In separate rulings about the Scottish airports in 2017 and 2018, the directorate general for competition "regretted" that the UK had allowed the aid to be put into effect before the commission had made any decision authorising it. But it decided not to raise objections to financial support going forward.
The EU has refused to comment on the Ferguson Marine case, but if a state aid investigation was launched and found proven, the commission could ultimately demand the recovery of money pumped into Ferguson before and after its financial collapse.
The Law Society of Scotland, the professional body for more than 12,000 Scottish solicitors, have previously warned ministers that nationalised Ferguson would be "under scrutiny" to ensure it was not a donor and recipient of "unlawful state aid" in future.
The Competition and Markets Authority has also expressed its concern about the "potential risks" of state control over the way ferries are operated, run and paid for.
In a response to a Freedom of Information question in 2018, the Scottish Government said it did not believe there was any state aid issue to address with regard to the loans to Ferguson.
Ministers were asked to provide proof that it had applied for EU exemption for the transactions or had confirmation that they were not subject to state aid regulations.
The official response was: "Scottish Ministers have provided two commercial loan facilities to Ferguson Marine Engineering Limited. Both loan facilities were negotiated on fully commercial terms following detailed due diligence, and with the benefit of independent third-party verification.
"On this basis we concluded there was no state aid present in the loan facilities provided to Ferguson Marine."
A Scottish Government spokesman said: “These accusations are incorrect. The Scottish Government operated consistently in a state aid compliant way and we made repeated and extensive efforts for mediation and arbitration.
“There is considerable work underway to turn round the yard and address the remedial work required from the previous management of the project
“The Scottish Government has worked for more than two years to find a resolution to the difficulties at Ferguson Marine with the completion of the two CalMac ferries, protecting jobs, and securing a future for the yard as our priorities. These remain our priorities.”
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