Scottish Borders Council was unaware of numerous complaints lodged by investors against the controllers of a group of offshore funds, one of which was supposed to finance a £21 million waste treatment facility to process the region's domestic rubbish.
The admission is included in a response to a Freedom of Information request in which SBC was asked if it had known at any time that Premier Group (Isle of Man), the managers of the New Earth Recycling & Renewables [Infrastructure] Fund (NERR) had been the subject of allegations from disgruntled shareholders since 2004 - more than seven years before a contract was signed between SBC and New Earth Solutions Group (NESG).
According to SBC: "The Council was unaware of any alleged complaints".
But the complaints against Premier Group - now in liquidation along with NERR - were well documented and available on web sites. The allegations were of serial failings by the directors of Premier Group, and claims they had designed and promoted a succession of "dubious" funds over 15 years.
The local authority has released several documents relating to NERR after being asked for information regarding the financial checks made by council officials or elected members as to the competence of NERR to deliver the treatment plant at Easter Langlee, Galashiels before a contract variation was approved in October 2012 to include unproven gasification technology.
Newly released reports and letters show two alternative methods of funding the project were under consideration in early 2013 involving financial input of £20 million from the Co-op Bank with the rest of the capital to come from NERR. Alternatively, if bank funding could not be secured then NERR was prepared to bankroll the whole deal.
But neither cash source materialised: the collapse of NESG meant the company owed Co-op Bank over £50 million while NERR investors and shareholders are virtually certain to lose everything following the fund's liquidation. At the same time parent company Premier Group is also being dissolved.
However, a 2013 financial review prepared by consultants for SBC was largely upbeat. The report concluded: "Overall, the financial standing of the New Earth Group appears to have strengthened modestly since the signature of the original Project Agreement.
"While still loss-making, this reflects the fact that the Group is in start-up phase and investing heavily in new facilities and contracts. According to the Directors’ Report, its performance is in line with expectations, and the Group is continuing to be strongly supported by NERR, its principal funders."
In fact NESG had recorded an operating loss of £6.5 million in 2012, up from £5.9 million the previous year. It has since transpired that the millions of pounds provided to NESG from NERR was to keep the waste treatment company going.
Elsewhere in the consultant's report it is stated: "The [NESG] directors' report includes confident statements regarding the Group’s market position, stating that 'policy and fiscal support for the two sectors that the Group is active in – waste management and renewable energy – remain strong and attractive.... In contrast to many operators in the waste sector, the Group has a proven track record of funding its growth and new projects during a time of financial austerity and a sharp contraction in the availability of project finance,' drawing particularly on NERR.
The report goes on to state that "during the last 12 months, the Group has developed and demonstrated its own suitable treatment technology, which is patent protected and has been branded as New Earth Advance Thermal (NEAT).
This was the technology brand which Borders councillors appear to have been so impressed with that they sanctioned its inclusion in the contract variation even before NEAT had started development trials. The failure of the gasification and pyrolysis system was one of the two main reasons the Borders project failed, losing taxpayers at least £2.4 million in the process. The other was the inability of NERR to come up with the money.
The highly ambitious and eventually undeliverable Energy Recovery Facility (ERF) planned for Easter Langlee was meant to provide power for over 400 homes, industrial premises and council buildings in and around Easter Langlee with surpluses being sold to the National Grid.
According to the report just published New Earth Solutions were telling SBC in 2013 that the plant would be generating energy sales worth £2.31 million by 2016/17. Under a profit sharing agreement the council could expect to receive £61,880 in that year. There would then be similar payments throughout the 24 years of the contract.
The report says: "The prospect of additional income from this source provides a financial incentive to the Council to work with Project Company to ensure that it enters into a Power Purchase Agreement (PPA) on the best possible terms available in the market, and develops a robust, financially viable and economically beneficial heat off-take plan."
As it turned out the entire project, including the planned district heating plan, proved to be an expensive white elephant with negative consequences for the Borders environment.
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