SCOTLAND’S state-owned investment bank could lose £9million of public money it put into the Scottish Government’s failed deposit return scheme, it has emerged.
Chairman Willie Watt today told MSPs that the Scottish National Investment Bank would suffer “significant losses” as a result of the scheme’s administrator going bust.
He said he expected the SNIB to lose more than half of the £9m it had given Circularity Scotland since May last year, but it could be 100 per cent of it.
“That’s the truth,” he told the Holyrood’s Economy and Fair Work Committee.
Mr Watt denied the SNIB had given Circularity Scotland the money to help with its start-up costs as part of a deal with the Scottish Government.
He also insisted there had been proper due diligence before the money was invested.
“I don't think we were incompetent in the way that we did our diligence,” he said.
However he also said the SNIB had taken "comfort" from ministerial commitments that the scheme would be going ahead as planned.
READ MORE: Fergus Ewing facing loss of SNP whip over 'sack Lorna Slater vote'
Al Denholm, the SNIB’s new chief executive, also said due diligence on the loan had been rigorous, but admitted the SNIB could surfer its first major loss on this venture.
However it is understood the Bank of Scotland, which agreed to lend Circularity Scotland a matching £9m, waited for key legislation to come into effect, and so lost nothing.
Its financing was "completely undrawn as it was contingent on certain legislation coming into effect which has been delayed", whereas the SNIB's loan was "fully drawn".
The DRS was aimed at improving recycling rates for drinks cans and bottles by charging a refundable 20p deposit on each container, with empties returned to stores.
For months, Green minister Lorna Slater had maintained that, despite widespread business concerns about the scheme's viability, the DRS would go live in mid-August.
But the UK Government imposed restrictions on its scope under the Internal Market Act designed to harmonise trade within the UK, barring it from including glass.
That prompted the Scottish Government to delay the DRS until at least late 2025, leaving Circularity Scotland unable to carry on as industry bodies refused to keep funding it.
Circularity Scotland yesterday went into administration with the loss of up to 60 jobs.
It has refused to say how much money if any will be returned to the SNIB.
Green minister Lorna Slater, who was in charge of the DRS, also failed to say this morning on BBC Radio Scotland how much of the SNIB’s money would be lost.
She survived a Tory-led no confidence vote at Holyrood yesterday over the saga.
The SNIB, which is wholly owned by Scottish ministers, was set up in 2020 to invest £2billion of public money in long-term projects helping the transition to Net Zero.
In May 2022, it invested £9m in Circularity Scotland, helping to leverage in another £9m from Bank of Scotland.
By coincidence, Mr Watt and Mr Denholm were appearing at the Economy Committee this morning and were quizzed about the impact of Circularity Scotland going into administration.
Mr Watt said he expected more information from the administrators in a few weeks.
“In terms of the impact on our loan, we don't know exactly what that impact will be.
“But I think it's fair to say that there will be significant losses on the loan that we have made to Circularity Scotland, and we will report those losses once we know what they are.”
Asked to define what he meant by significant losses, Mr Watt said: “I can’t answer that question in specific terms because we don't know what the result of the administrators’ work will be. How would you define significant? Over 50%. I'm sure that the losses will be in excess of 50% but I hope that they're less than 100%.”
Pressed on whether the SNIB could lose the whole £9m, Mr Watt said: “Yes, we could. That is the truth.”
Mr Watt denied Scottish Government ministers or officials had steered SNIB into making the loan, and said the investment had followed a direct approach by Circularity Scotland.
READ MORE: Nicola Sturgeon refuses to say if husband innocent of wrongdoing
He said: “We felt that the circular economy is squarely within the net zero mission. We were approached directly by the company and we went through significant due diligence, but there was no involvement from the Scottish Government in our decision to to meet the law.“
Asked about the impression that ministers and SNIB had been working as a “joint venture” on the investment, Mr Watt said: “It honestly wasn't. We make all our decisions totally independently of the Scottish Government. We're a fiercely independent institution.
“When we get things right, we get them right because we make those decisions.
“When things go wrong, they go wrong because we make our decisions and we stand by the decisions that we make.
“Clearly, we were aware of the support the Scottish Government was giving to the scheme. “Tthere was an act of parliament, there was cross party support for the scheme, it was clearly central to government policy, but our involvement was with Circularity Scotland.
“For better or worse, the Scottish government weren't involved in that decision at all.”
He said the SNIB would do a complete “drains up” review of the investment, but he though the SNIB had done a “thorough job” on diligence, but there had been significant changes to the scheme that could not have been anticipated when the investment was made.
Told by Tory MSP Graham Simpson he should have foreseen the risks, Mr Watt laughed.
“We can't know the future. I've been investing for about 40 years. Sometimes things don't turn out the way you thought that they did.
“The important thing is that you looked at the risks in that you made considered decisions on the basis of those risks. Sometimes people make mistakes. Sometimes people get things wrong. Sometimes the facts are different from the way you thought they would be.
“That's part of being an investor. I've sat in this committee before and said that we will make losses on investments, which we will. We can't always get things right.
“But what Al and myself will be doing is looking at lessons learned, we will continually try and improve our processes.
“But sitting here before you knowing what we know today, and having gone through the detailed investment papers, I don't think we were incompetent in the way that we did our diligence."
Scottish Liberal Democrat MSP Willie Rennie said: “This is an extremely difficult time for Circularity Scotland staff, whose jobs are at stake because our two governments are incapable of working with one another.
“The £9m loan from the government-backed bank raises serious questions about whether that money would be lost in the event of its collapse, adding taxpayers to the long list of people left out of pocket by the chaos wreaked by the Scottish Government.
“Staff need to know if they will be paid. Taxpayers also need answers on the amount outstanding on the loan and whether any of that debt can be recovered in the event of administration."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel