Audit Scotland to probe misuse of taxpayer funds on 'lost' £25m for lifeline ferries

They will form part of an examination over whether the Scottish Government's nationalisation of the shipyard company and the attempts to build two lifeline ferries was good value to the taxpayer.

They hope to speak to former Ferguson Marine owner Jim McColl, one of Scotland richest men, who last week revealed he was gathering evidence for potential court action against the Scottish Government over the nation's ferry building fiasco.

The 69-year-old engineering tycoon and member of of the First Minister's Council of Economic Advisers, questioned the legality of the actions of ministers who oversaw the waiving of £25m of taxpayers money to allow a controversial nationalisation of his financially troubled Ferguson Marine.

READ MORE: State-run 'ferry fiasco' Ferguson Marine shipyard firm makes £100m loss in four months

The founder and chief executive of private equity investment firm Clyde Blowers aid that the waiving of the £25m meant that the ministers' purchase of the business had effectively cost the taxpayer £32m.

The £25m 'lost' to the taxpayer was through the foregoing of the ferry completion insurance and formed part of a secretly negotiated deal which formed the pathway to a state takeover sand hould have gone towards completing the ferries. Behind the scenes the insurance - which meant an insurance company had a hold over FMEL's assets - was seen as a stumbling block over ministers' bid to nationalise his company.

At the centre of the debacle is MV Glen Sannox and Hull 802 which are still languishing in now state-owned Ferguson Marine's shipyard, with costs of their construction more than doubling from the original £97m contract.

Ferguson Marine's financial collapse in August, 2019 resulted in state takeover, while the delivery of the ferries which were due online in the first half of 2018 will be between four and five years late.

The ferries contract was plagued by design changes, delays and disputes over cost, with the yard’s management and Caledonian Maritime Assets Ltd (CMAL), the Scottish Government-controlled taxpayer-funded company which owns and procures ferries for state-owned CalMac, blaming each other.

The Scottish Government is still owed over £40m from the collapse of FMEL having used £7.5m of what they were owed through the loans to buy the business.

It is understood that Audit Scotland officials will be discussing the issue of the completion insurance tomorrow.

It comes as finance secretary Kate Forbes denied misuse of public funds through the forfeit of the £25m to complete the vessels, after being questioned in the Scottish Parliament.

Ms Forbes said: "In the absence of a workable commercial solution the administrators of Fergusons concluded that bringing the yard into public ownership was the best option."

The 'lost' £25m related to a bond from HCCI, a subsidiary of Texas-based insurance firm Tokio Marine which ensured that should Ferguson enter into administration CMAL would receive the money to enable completion of the vessels.

To cover themselves against a payout, HCCI had a security over the assets of FMEL, owners of the last civilian shipyard on the Clyde, which stood in the way of any nationalisation plan.

Audit Scotland said it would look at the rationale for decisions over the ferry completion insurance which are understood to have only covered 25% of the cost rather than all of it.

It will also look at whether the loans were clear and transparent, that there was a clear rationale for it, and whether the funds went directly towards the progress of the ferries, or to support the wider business.

"Importantly, we have to try and pull out recommendations and lessons learnt to make sure this doesnt happen again," one source said.

While it will not pass judgment on political decisions, such as the move to nationalisation, it will try to "improve public understanding" of what went wrong with the deliver of the ferry vessels.

READ MORE: Jim McColl looks at court action against Scottish Government over ferry fiasco

"It will provide assurance to the Scottish Parliament and the public that the Scottish Government has put appropriate arrangements in place to complete the vessels," Audit Scotland said.

"Ferries are essential for sustaining Scotland’s most remote communities. Significant public sector investment has been made in the new vessels, which were intended to improve the reliability and capacity of lifeline ferry services.

"The vessels are now expected to cost more than double the original budget and, at best, will be delivered over four years late. The delays and cost overruns have had a negative impact on island communities, weakened resilience across the Clyde and Hebrides network, and generated significant public, political and media interest.

"In December 2020, the Scottish Parliament’s Rural Economy and Connectivity (REC) Committee concluded its inquiry into the project. It reported there had been serious failures in vessel procurement, project planning, project management and communication.

"Given the significant cost overruns which will be met directly from public expenditure, the committee recommended that Audit Scotland review CMAL’s financial management of the vessel contracts and Transport Scotland’s role in this. It also recommended that we investigate the Scottish Government’s loan support to FMEL.

"The overall aim of the audit is to provide an independent assessment of the initial and new arrangements to deliver the two vessels."

Last week, in the wake of the Herald on Scotland revelations, Labour's shadow public finance minister Paul Sweeney asked Ms Forbes to release all correspondence between ministers, HCCI and CMAL if the £32m 'forced' acquisition "was not an alleged misuse of public funds, attempting to cover up for the failures of CMAL and ministers that caused the collapse of the shipyards as asserted by the previous management of Ferguson Marine".

Ms Forbes said that it was "incorrect" to say that £25m was lost to the public purse but said she was "restricted on what I can say" because there was a court case pending in connection with their deal.

"Agreement was reached with HCCI to release them from a performance bond that they had provided for Fergusons," she said.

Three weeks ago, ministers lost a £5m court claim made by HCCI in connection with refund guarantees they said was owed to them as part of their secret deal.

A Scottish Government spokesman said: “The Scottish Government stands firm on its commitment to the vessels, the workforce and the yard. The delivery of the vessels is critical to supporting the lifeline ferry network by adding two new badly needed vessels to the Calmac fleet.

“The Scottish Government is committed to transparency and is assisting Audit Scotland with its review.”