Breaking News; HIE: Loan Sharks to the Space industry investigated by Scottish Government
20th Jul 2020
Recently, we became quite concerned about the finances of the proposed Sutherland Spaceport and those concerns simply raised more questions for us, as the numbers didn’t add up. Our primary areas of concern were around the Orbex Space company and Highlands & Islands Enterprise (HIE).
The Enterprise agency, HIE, were the subject of a FOI request from us following the published articles shown below that we felt needed some further information:
3rd July 2020: https://orbitaltoday.com/2020/07/03/the-broken-economics-of-the-sutherland-spaceport/
15th June 2020: https://orbitaltoday.com/2020/06/15/part-2-the-uk-space-consortium-cracking-it-wide-open/
8th June 2020: https://orbitaltoday.com/2020/06/08/cracks-starting-to-show-in-uk-space-consortium-as-they-criticise-local-council-government/
Before we reveal the answer we received from HIE to our FOI request, it seems like a timely moment to highlight the strange stance of Orbex when asked how many employees they had, who then claimed that it was a secret (commercially sensitive). You will see shortly why we remind you of this. For your info… they have 13-15 employees in the UK.
So, we did get an answer to our Freedom of Information request from HIE. Out of the six questions we asked, the answer to four of them was a “secret” (commercially sensitive) – Do you recognise this stance from anywhere? It further stated that answering those questions would have negative financial impact on Orbex and therefore on HIE itself. Which should raise concerns that HIE has exposed itself to a significant financial risk by both lending to Orbex and “investing”. So, we had a look at similar projects under the management of HIE to see if this was normal conduct for them, and whether they had ever been called to account for any lack of judgement or absence of necessary financial scrutiny. *Spoiler: We discovered they had just last month.
It is also worth pointing out:
- 1. When we politely asked HIE’s Director, Peter Guthrie the purpose of the loan on twitter, he blocked us
- 2. HIE said the FOI request could take up to 28 days. They took exactly 28 days to send it to me.
This sort of infantile behaviour is not what we would expect from an established government agency responsible for millions of pounds of local expenditure.
It is possible that Peter Guthrie falls into one of the following salary categories, although we can’t be 100% sure of that. However, he has demonstrated that as a public servant, whatever it is he is paid…. is probably too much.
The loan was provided to Orbital Express Launch Ltd (Orbex) to be used as Working Capital.
Rather than provide our own definition of what “Working Capital” is, we will use the Wikipedia definition as a more official source…
In the Wikipedia entry for “Working Capital” it says…
“Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short term debt and upcoming operational expenses.”
So by the definition of Wikipedia, the very concerns that we raised have come to be valid and now further validated in writing by HIE. The company selected by the British Government through the UK Space Agency is being bankrolled by UK taxpayer money funnelled through Highlands and Islands Enterprise… to enable it to continue its operations! And we were blocked for asking the question then strung out for 28 days while HIE hastily hashed together a press release that was supplied to a local newspaper in an attempt to explain the £675k loan and then quietly reveal that another £825k was “invested” in the cash strapped Danish rocket company.
So, let’s get back to HIE. We took it upon ourselves to look at their other activities to determine whether their mismanagement of the spaceport project was a “one off” or whether it was an established pattern of incompetence within the agency.
Back in October 2019 it was widely reported that Highlands and Islands Enterprise had loaned £610,000 to Shetland Space Centre Director, Frank Strang, through his management company Shetland FM Ltd. The company then went into administration with the loan remaining unpaid.
Everything appeared to be perfectly legitimate (to a degree) until it was later revealed that the money was transferred out of Shetland FM’s bank account and into another company owned by Frank Strang’s family just before the liquidation process happened.
HIE did have security over property for the loan, so they may use that to enforce the repayment (although there is currently no sign of any legal action to do so). However, that doesn’t distract away from the fact that there appears to be a severe lack of judgement and necessary due diligence on the part of HIE.
HIE, amongst other things are responsible for the infrastructure at the Cairngorms Ski Centre, which it took into public ownership in 2008. After which, things started to go horribly wrong. HIE have come under constant criticism for failing to maintain the popular Scottish Ski Resort leading to its rapid decline.
Despite HIE pumping millions of pounds into the Cairngorms, the resort remains in a serious state of disrepair and is financially on its knees.
Locals have asked for the Scottish Government to intervene and remove HIE from all operational involvement. Here is what Parks Watch Scotland had to say about the situation…
With an increasing number of concerns being raised, the HIE management of the Cairngorms infrastructure eventually triggered an investigation by the Scottish Government.
Scottish Government investigation into HIE found a shortfall in financial scrutiny
The investigation and subsequent report suggested that HIE didn’t have sufficient procedures in place for identifying and documenting “risks” when there is a likely significant impact on the wider public finances.
The same report also went on to suggest that improvements are made in monitoring the “financial standing” of any operators awarded contracts.
But, perhaps the most concerning recommendation from the Scottish Government report was that HIE should put in place a process to ensure an “appropriate level of financial scrutiny” is applied to ongoing operating costs. All of which suggests such scrutiny did not exist up to that point.
But, wait a minute, this report was from years ago wasn’t it?
No. It was published just over a month ago on 18th June 2020. So, it now reveals that any projects HIE have been involved with prior to that date have also lacked the necessary levels of financial scrutiny recommended by the Scottish Government in the case of the Cairngorms resort. The report in full…
How can HIE manage a spaceport when a Car Park is beyond their capabilities?
Even recently, when the Scottish Government announced the easing of lockdown restrictions due to the Covid 19 crisis, allowing people to travel further from home, HIE came under heavy criticism for keeping the Cairngorms Car Park closed, which lead to hundreds of vehicles jamming the nearby roads…
http://parkswatchscotland.co.uk/2020/07/15/cairn-gorm-hies-mis-management-of-the-coire-cas-car-park-and-an-alternative-future/
Here is the answer to our FOI request in full…
Thank you for your email on 9 June 2020, received by Highlands and Islands Enterprise (HIE).
Your request (below) has been considered by Highlands & Islands Enterprise under the Freedom of Information (Scotland) Act 2002 and we are pleased to provide you with the following information
The Date of the Loan
3rd March 2020.
The reason given by Orbex for requiring a loan
This was for Working Capital for an Orbital Micro-Launch Satellite Vehicle.
Evidence shown by Orbex that the loan was needed
Relevant information is held however this information has been withheld under the Freedom of Information (Scotland) Act 2002 (FOISA), Section 33(1)(b) Commercial interests and the economy, as it is considered that disclosure would, or would be likely to, substantially prejudice the commercial interests of Orbital Express Launch Limited as well as HIE’s commercial interests. This is because disclosure of this type of information is highly likely to substantially prejudice the ability of any organisation to compete in a highly competitive market. Where disclosure causes any degree of detriment to an organisation, HIE’s commercial interests will also be significantly affected where the disclosure results in the organisation being unable to repay a loan. I can confirm that the approval of the loan followed HIE’s standard due diligence processes.
Proof shown by Orbex that they had exhausted traditional borrowing channels prior to requesting from public funds
Relevant information is held however this information has been withheld under the Freedom of Information (Scotland) Act 2002 (FOISA), Section 33(1)(b) Commercial interests and the economy, as it is considered that disclosure would, or would be likely to, substantially prejudice the commercial interests of Orbital Express Launch Limited as well as HIE’s commercial interests. This is because disclosure of this type of information is highly likely to substantially prejudice the ability of any organisation to compete in a highly competitive market. Where disclosure causes any degree of detriment to an organisation, HIE’s commercial interests will also be significantly affected where the disclosure results in the organisation being unable to repay a loan. I can confirm that the approval of the loan followed HIE’s standard due diligence processes.
Repayment period
Relevant information is held however this information has been withheld under the FOISA, Section 33(1)(b) Commercial interests and the economy, as it is considered that disclosure would, or would be likely to, substantially prejudice the commercial interests of HIE. Additionally, it has been decided that this information is exempt from disclosure under FOISA, section 30(b)(ii), Prejudice to Effective Conduct of Public Affairs, as to disclose this information would prejudice substantially HIE’s negotiating position with clients and our ability to work with them to achieve best possible value for money. Disclosure of this information would also substantially prejudice the position of Orbital Express Launch Limited as it would provide information relating to their current financial status that is highly likely to be used in a way that would affect their trading position.
Further to this Interest, charges or fees
Relevant information is held however this information has been withheld under the FOISA, Section 33(1)(b) Commercial interests and the economy, as it is considered that disclosure would, or would be likely to, substantially prejudice the commercial interests of HIE. Additionally, it has been decided that this information is exempt from disclosure under FOISA, section 30(b)(ii), Prejudice to Effective Conduct of Public Affairs, as to disclose this information would prejudice substantially HIE’s negotiating position with clients and our ability to work with them to achieve best possible value for money. Disclosure of this information would also substantially prejudice the position of Orbital Express Launch Limited as it would provide information relating to their current financial status that is highly likely to be used in a way that would affect their trading position.
The exemptions at sections 30 and 33 of FOISA used above both require consideration of the public interest. While HIE always endeavours to be as open and transparent as possible and acknowledges the public interest in the investment it makes, in this case it has been decided that the public interest is in ensuring HIE:
- Is able to negotiate with clients and potential clients in a way that ensures the most effective use of public funds;
- HIE is able to support clients appropriately and does not detrimentally affect their business operations by the disclosure of information;
- Disclosure of any information does not adversely distort the market in which an organization is operating.
We look forward with interest to seeing Highlands and Islands Enterprise revisit their processes and practices in light of the scathing report from the Scottish Government. Although it does look like they have taken on at least one of the recommendations by providing financial support to the struggling Danish rocket firm. How sustainable that is, remains to be seen.
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