Sunday, 2 July 2017

Did council fall for claims of fund's bosses?

DOUG COLLIE reports on the contents of more newly released documents

Scottish Borders Council was told an "environmentally friendly" investment fund was attracting cash at the rate of £6 million per month, and there would be plenty of money to finance a brand new waste treatment facility for the region to be developed by contractors New Earth Solutions Group.

But behind the sales patter, including a stupendously impressive graph sent to the council in March 2013, the managers and controllers of the Channel Islands registered New Earth Recycling & Renewables [Infrastructure] Fund (NERR) were siphoning off millions of pounds in fees.

These payments, which were being transferred from NERR to its Isle of Man parent Premier Group Isle of Man Ltd, totalled more than £22.7 million over the space of two years, sufficient to cover the £21.5 million capital cost of constructing the Borders waste project at Easter Langlee, Galashiels.

Another set of reports and letters which have been released by SBC under Freedom of Information contains extremely positive facts and figures relating to NERR's financial well-being.

The documents include a letter outlining NERR's state of health and its intentions towards the Borders waste centre.

A separate communication between NESG and the council appears to reveal that NERR had invested £1 million into the scheme to cover predevelopment costs. It is not known whether this £1 million should be added to NESG's multi-million pound losses and the £2.4 million of taxpayers' cash which SBC squandered on the failed venture.

A 2012 letter from David Whitaker, a director of the NERR fund to Chris Cox, managing director of NESG - Mr Whitaker was, at the time, also director of NESG and of the project company set up to deliver Easter Langlee - outlines how well NERR was allegedly doing. It is the first NERR correspondence to be released as a result of a FOI request.

According to Mr Whitaker: "The NERR investment fund is experiencing growing interest via its two feeder funds from UK and overseas investors who recognise that it offers growth potential and diversity as part of their investment portfolio or pension fund, as well as being an environmentally friendly investment.

"The Feeder Funds have raised in excess of £95m of cumulative subscriptions since Summer 2008 – of which around £65m has been invested into NES and its projects to-date and substantial funds remain available for further investment. These Funds are currently raising £50m on an annualised basis to invest into NES’ projects via NERR."

He explained that the fund's long-term business model was to provide up to 25% of the capital requirements of NES’ projects. Mr Whitaker continued: "However, given the current financial climate and the Funds’ impressive performance, NERR is prepared to adopt a flexible approach to funding NES’ projects whereby it is willing to provide 100% of the funding to deliver projects, with the intention of refinancing assets within the first three years or so of operation".

The letter added that NERR had a target rate of return of 15%, which reflecteds the fact that NERR was neither a bank nor a venture capital investor. NERR was an infrastructure investor that provided gap funding.

At the conclusion of the letter Mr Whitaker grants consent for a copy of his letter to be given to SBC.

It is unclear whether Borders councillors and their paid officials attempted to verify the claims made in that NERR letter or the similarly bullish contents of a so-called funding update in March 2013 from NESG finance manager Shaun Gomm.

He explained how NERR funds had raised over £166 million in cumulative subscriptions since its launch in 2008. And NERR had raised £30 million in the last five months with "significant new business being generated in the UK, Europe and Asia".

The letter to council project director Ewan Doyle, which is marked strictly private and confidential, includes a current cash balance for NERR as of March 2013.

But for some reason Scottish Borders Council blacked out the figure before release of the document even though NERR is in the hands of liquidators. The increase in the balance from December 2012 has also been redacted

The fund may have had a nominal value of £166 million at one point. But the hard truth is that 3,250 investors, along with SBC, have lost all of their money.

This latest portfolio of information made public for the first time indicates that NESG and NERR were both telling SBC in 2013 that there would be no difficulties in funding the Borders project. Yet by the time the entire contract was torn up and abandoned two years later the money was not - and had never been - in place.

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