MINISTERS have come under fire after it  emerged that only just over 40 of a  promised 2,000 jobs bonanza that  supported a taxpayer-backed rescue of  the UK’s last aluminium smelter have materialised.

Serious concerns have been raised over the cost to the taxpayer over the  state intervention in the deal to allow commodities tycoon Sanjeev Gupt GFG Alliance to save the Lochaber smelter and hydro plants five years after Nicola Sturgeon said it was an “exciting new chapter” for Scottish manufacturing.

It has emerged that the Scottish Government's investment return for providing a power purchase guarantee to save the Highlands enterprise that could cost taxpayers £586m - stands at zero.

Scottish Government data reveals that as of March just 44 new jobs have been created since the deal was struck to save the Lochaber smelter, lauded by ministers as one of the greenest in the world.

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According to Scottish Government papers, seen by the Herald on Sunday, the power purchase guarantee would enable GFG, one of the UK's biggest industrial groups, to raise finance for a new £70m plant "to create new industrial employment opportunities".

In November, what had become a £120m plan by Liberty Steel Group, part of GFG, to make Fort William "a future hub of Britain's automative industry" was shelved.

An alloy wheel factory with the promise of 400 skilled jobs "with many hundreds more employed in the supply chain and regional economy" has become a recycling plant creating 70 new jobs.

The Herald:

Scottish Liberal Democrat economy spokesman Wille Rennie said: “The massive financial exposure that the Scottish Government have agreed to has been provided with very little return from the Gupta operation.

“This is part of a pattern with this SNP government who have withered Scotland with industrial intervention failure.

"From BiFab to Ferguson Shipyard to Prestwick airport, the promised boon for the local economy has never materialised."

Edward Mountain, the Scottish Conservative Highlands and Islands MSP and former convener of the Scottish Parliament rural economy and connectivity committee said: “The Scottish Government’s financial assurances appear to have be given without due diligence on the overall state of the infrastructure that allows the generation of electricity at Lochaber.

“GFG Alliance have used the Scottish Government’s guarantees to finance further purchases, which means that the Scottish Government is locked into a bad deal that has created far fewer jobs than were promised.”

The Scottish Government said it had acted to support high-skilled jobs.

Liberty British Steel and Simec Lochaber Power, part of GFG, bought the smelter together with hydro-power plants at Fort William and Kinlochleven from Rio Tinto in a deal worth £330m in December, 2016.

The GFG firms had said that they would "progressively expand" metal manufacturing and downstream engineering eventually bringing 1000 direct jobs and 1000 indirect jobs to the heart of the Highlands and adding around £1 billion to the local economy over the next decade.

The acquisition included the hydro-electric station, the aluminium smelter at Fort William, the neighbouring hydropower plant at Kinlochleven and over 100,000 acres of estate land which hosts the water catchment area, including the foothills of Ben Nevis, Britain’s highest mountain.

The First Minister described it as a "historic day" for the UK’s last remaining aluminium smelter here in Lochaber.

The Herald:

She said: "GFG Alliance’s buyout of the complex will protect 170 existing jobs and with ambitious plans to invest in the site, expand operations and add value, we look forward to hundreds of new jobs being created in the coming years.

She said the Scottish Government's 'guarantee' "reinforces the essential link between the smelter and hydro station at Fort William and provides a firm foundation for GFG’s ambitious expansion plans".

She added: "Today is the start of an exciting new chapter in Scotland’s manufacturing story and the Scottish Government and its agencies will keep working with Sanjeev Gupta and the GFG Alliance to help them realise their enterprising vision for Lochaber.”

According to the Scottish Government as of March, the 44 new jobs produced at Lochaber in the past five year at put total employment there at 200.

Payroll and pension contributions generated from the employment total over £41 million and spending with suppliers, including local businesses, exceeded £34 million.

As part of the GFG takeover, a 25-year deal involved owners Liberty House, another part of the GFG, agreeing to purchase power from the hydro electric plants.

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The deal involved ministers guaranteeing the power purchase obligations of the smelter if the new owners did not fulfil obligations to pay for contracted power from the Fort William hydro power station.

The Scottish Government has admitted there is a £586m risk in the power purchase guarantee which was central to the GFG rescue aimed at securing around 150 jobs and creating hundreds more.

The guaranteed annual amounts vary between £14 million and £32 million over the lifetime of the contract.

It has emerged that the while the Scottish Government was supposed to receive an annual 'insurance' premium for the guarantee throughout the 25 years, as of 2019/20, according to Audit Scotland, it was valued at 'nil'.

The power purchase guarantee would enable the GFG Alliance to raise finance and according to Scottish Government papers discussing the takeover in 2016, the plans for Lochaber focused on operating the smelter and building a new on-site factory which was to be capable of supplying at least one fifth of all alloy wheels required by UK vehicle makers.

GFG Alliance produced a video in 2017 telling how they purchased the Lochaber Smelter with the purpose of turning it from a metals business to an engineering business and tells of plans for reviving industry in the Highlands and re-shoring manufacturing to the UK.

Mr Gupta told ministers it would be established within 18 months of getting planning approval.

He said in a letter in advance of the takeover that Liberty House would also invest in new Electric Arc Furnace facilities in Scotland for the recycling of steel.

In 2019, the construction of the alloy wheel factory was expected to begin in early 2020, continuing late into 2021.

But in November, last year the plans for the alloy wheels factory were shelved.

GFG said there had been a "significant decline" in car manufacturing.

It was to be replaced with a £94m plan to recycle aluminium on the proposed site.

Alvance Aluminium, which is also part of GFG Alliance, would use the recycled metal in a new casting plant to produce 80,000 tonnes annually of long round shapes called billets for use in the construction industry.

But instead of the 290 jobs hoped for it would create 70 new roles and GFG said the facilities could be operational by 2024.

There has also been local criticism that an undertaking to transfer some of the huge Highland estates that came with the smelter sale to community ownership has not happened.

New Scottish Government papers seen by the Herald have revealed that the Scottish Government's expectations for the future.

A 'key message' internal briefing for the First Minister in preparation for speaking at the official handover of the smelter in 2016, states: "The uncertainty hanging over the workforce since January has been lifted; ending an anxious wait for the workforce and all those whose livelihoods depend on the business.

"This deal safeguards the existing jobs and has the potential to create hundreds more through planned investment.

"The guarantee is designed to underpin long-term certainty for the smelter around the cost of its energy and provides a stable platform for future viability and expansion.

"Now a new exciting chapter of industrial development is set to begin for Lochaber."

A separate Scottish Government background paper explaining the basis of the state support states that the smelter fell in line with their green aspirations.

It said that the smelter produces amongst the greenest aluminium in the world – emitting up to five times less CO2 than that produced by coal-fired stations, which forms the majority of the world’s aluminium supply.

It states: "The Scottish Government recognised that the smelter presented a more challenging commercial prospect than the hydro power stations alone.

This had to be factored into capital raising considerations for any purchaser with plans to own and develop the Lochaber complex in its entirety as a going concern.

The Herald:

"To enhance options that preserved the integrity of the current configuration – and reinforce the essential link between the smelter and hydro at Fort William – the Government signalled in September a willingness to support any purchaser who would make the necessary commitment to the local community in relation to employment, industry and sustainable development. The offer included the potential to guarantee the power purchase obligations of the aluminium smelter.

"The Government’s offer was made known on an even-handed basis to all short-listed bidders..."

It states that intervention was consistent with the Government’s low-carbon economy ambitions as the aluminium produced at Fort William was derived from "renewable energy" and it can be used in manufacturing where it often "displaces other metals with higher carbon intensities" like in the automotive sector.

It also points out that aluminium is a "nationally strategic metal and a form of stored energy as the metal can be constantly recycled".

The Scottish Government also took the view that no State Aid was present in their intervention.

A separate internal paper states: "This transaction has been completed in accordance with the market economy investment principle (MEIP). At its most basic, the test for MEIP is whether in similar circumstances a private investor, having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy conceptual considerations would have subscribed the capital in question."

The Scottish government has previously stated it carried out appropriate due diligence in its involvement with the help of accounting firm Ernst & Young LLP.

GFG employs around 35,000 people, across 10 countries, with revenues of circa $20bn.

Two weeks ago a report by MPs said that Mr Gupta should be investigated for potential breaches of his duty as a company director and said his leadership threatened the future viability of GFG's Liberty Steel.

Liberty Steel has, meanwhile, lurched through eight months of crisis after the March collapse of its key financial backer, Greensill Capital, triggered an ongoing attempt to find new lenders.

GFG was forced into an urgent financial restructuring while the UK government in March rejected its request for a £170m bailout because of its opaque corporate structure.

The Serious Fraud Office has confirmed it is investigating allegations of fraud and money laundering in relation to GFG including its financing arrangements with Greensill Capital.

And former prime minister David Cameron has faced questions about his lobbying work on behalf of Greensill since leaving office.

A Scottish Government spokesman said: "We are committed to supporting jobs across Scotland and make no apology for doing so - including our backing for Scotland's strategically important aluminium sector and the highly-skilled jobs it provides.

"The Scottish government guarantee, which has not been called upon, was approved by the cross-party finance and constitution committee following appropriate due diligence.

"As part of that guarantee the Scottish government took on a comprehensive security package consisting of the smelter, the hydro power station, extensive land holdings, and a series of other protections."

A GFG Alliance spokesman 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.

"These expansion projects, which recently received consent from the local planning authority, will further bolster Lochaber’s role as a hub for green aluminium production – thanks to its hydro-electric facility integrated with the wider estate, the plant already produces some of the lowest carbon aluminium on the market.”