Good morning, and welcome to the 13th meeting of the Economy, Energy and Fair Work Committee for 2019. May I ask everyone present to turn any electrical devices to silence so that it does not interfere with the business of the meeting? We have visiting today Rhoda Grant MSP. Welcome to you to committee this morning. If I can turn to housekeeping matters, first of all, item 1 on the agenda is a decision by the committee to take items 3 and 4 in private. Is the committee agreed? Yes. Thank you. I will also indicate at this point that I may have to go to another committee very briefly during the course of the meeting in which case the deputy convener John Mason will then take the chair. I might start by explaining what we have today as a round table, which is meant to be a format where people can come into the discussion on points that they have something to say on. In the interests of hearing as much from our guests today, I would ask members to keep their questions fairly brief. If anyone does want to come in, I think that it could simply indicate by raising their hand so that I can bring them in. No need to press any buttons. The sound desk will switch the mics on and off, so if you simply indicate that you want to come in, if I bring you in, then the sound desk will simply operate your microphone. Also, we are looking, as you will know, at issues that have arisen regarding BiFab. In the interests of everyone knowing where we are going, we intend to start by looking at BiFab, available opportunities surrounding that, then look more generally at the Scottish supply chain, consider issues relating to the contract for difference and the Murray East wind farm, and then finally look at future opportunities and consider issues that arise more generally there. If I might start, first of all, by asking each of our guests just to introduce themselves and say very briefly who they are, what organisation they are from, I have already mentioned Rhoda Grant, MSP, who is here, and perhaps we could start with our guest Peter Welsh and then come round the table each of our guests introducing themselves in that way, so we will start with Peter Welsh. As you said, Peter Welsh, GMB Scotland to campaigns and communications department. Andy Wightman, sorry, are you wanting members to introduce themselves? Members could introduce themselves as well very briefly. Andy Wightman, MSP for Lothian. Nick Sharp, director of communications at Scottish Renewables. Jackie Baillie, MSP for Dunbarton. Audrey McKeever, director of energy and low carbon for Highlands and Islands Enterprise. Jamie Hacker-Johnston, Highlands and Islands MSP. Pat Rafferty, Scottish Secretary of Unite. Colin Beattie, MSP for Midlothian North and Musselborough. Dean Lockhart, MSP for Mid Scotland and Fife. Andy Middoll, interim director of energy and low carbon at Scottish Enterprise. Gordon MacDonald, MSP for Edinburgh Pentlands. Angela Constance, MSP for Amon Valley. Bill Alkington, chairman and founder of the JV Driver Group of Companies, which owns by that. Sean Powell, vice-president of DF Burns. DF Burns is a JV Driver Company on the east coast of Canada that by Fabry reports into. John Mason, MSP for Glasgow Shetleston. Andrew Jameson, chief executive of the offshore renewable energy catapult. Our primary remit is to drive innovation into offshore renewables. Sector. Thank you. I'm Gordon Lindhurst, MSP for Lothian region and convener of the committee. If I might start with a couple of questions about bi-fab, perhaps Bill Alkington or Sean Parmi will be able to answer some of these in the first instance. First of all, how many people are currently employed in the bi-fab? How many people work there? In the Fife region, we still have only a minimal force of about 30 people working for us right now, and that's mostly management people. I think with a couple of union people. We've been doing a lot of training and preparation work with that part of the workforce. However, up in our nation, I'm happy to say that there are about, I think, today 85 people working, so we're able to get that plant working again, but still working real hard on the Fife region. Can you say 85 are these all-permanent staff or some agency workers? I had to take some advice on that, but I'm pretty sure they're all permanent staff. Yes, yes, there. Do you know how many were employed there at its peak? The maximum, I think, we've ever had at Arnish before JVD, it was about 150 people. Do you see you getting back up for those numbers? That is certainly the intention. Our intention in Arnish, as well as for bi-fab in particular, is to hopefully take advantage of some of the renewable projects, the offshore wind projects, in order to stabilize the company and then diversify so that we get back into offshore oil and gas, decommissioning and so on, so that there's a stable workforce in Arnish and not one that sees the peaks and valleys. I think that in 2017 the company was possibly looking at going into administration, is that right? Yes. Why was that if you are looking at things longer term? The 2017, we were looking at the company to acquire it prior to it having the difficulties, and what occurred in 2017 was really a perfect storm. The Beatrice contract had a significant amount of change, up to 25% increase in weight on those jackets. Unfortunately, John Robertson, who was president at the time, also passed away. That created that perfect storm. In our due diligence on the company, we determined that it was going to run out of funds and inform Scottish Enterprise and the Scottish Government. They were not going to be able to complete that contract. That indeed did happen. They were not able to settle their change at that time. When John passed with most of the negotiating capability and relationships for Bifab, that put them in a very poor position. They did eventually, and we helped them after we took over, to resolve the issues on the Beatrice project, but not at the value that should have been unlocked, unfortunately. Running out of the cash in 2017 put them in a very, very poor position. What has been done to ensure the future of the company, to secure it, to ensure that things like that do not cause the sort of situation to arise again? The number of issues that we determined in Bifab, first and foremost, are project controls. We have instituted a training programme with the staff to improve project controls more in line with the way that JV Driver does things. Also, from a safety perspective, we have instituted training in up in Arnish. Our safety programme is being implemented very successfully. I see a lot of improvements there. The key aspect of project control is how to run the costing side of the project and know exactly where you are, especially amongst changes, is a key change. If I may just add to that, Bifab had 25, previous to us owning Bifab, they had 25 years of success. They had a bad project with a tough client, and that happens in this business. But we understand what happened there. We are able to help support them and fix it. We are changing what went wrong, but it is still a solid company. Has that also looked to securing future work for the company in future orders? We have been flat out since we purchased Bifab in trying to secure more work for the two yards in Fife and Arnish, with some success in Arnish. I pretty much live here in Scotland these days, and all of our resources from eastern Canada are focused here in Scotland now because we want to ensure that we bring more work to the yards. Those negotiations have been much longer than thought and less fruitful than we thought. However, that being said, there were still others on the horizon. We have been working really hard to get some contracts. Have you been successful? Not at this time. I will give you a little bit of the lay of the land. On the East Murray project, the awards went to Lamperl. The previous project that Lamperl had done was USD $225 million. They lost USD $80 million. The result of that was a lawsuit as well. That was settled, and they received 45 jackets from GOC in a non-bid basis. The next chunk of work we bid, and we were the low bidder. We then went into a recycle mode with the EPC, and they asked that the bidders create a joint venture, which is very strange when you are in the middle and you have already bid the work. That joint venture had attached to it risks that were just not sustainable from a commercial standpoint, and we indicated that we were not able to join in a joint venture taking on those risks. Smolders, who have done a lot of work with the parent company, did accept those risks, or they negotiated over six months. We do not know in the end what they accepted, but that was a very different procurement cycle than we have ever seen before, where you bid the work, you are the low bidder, you do not get awarded the work, the information gets shared amongst the bidders, and you are asked to create a joint venture at that time. That work went to a company that the EPC works with significantly in Europe, and unfortunately, we did not win that work. On Cincardin, we lost the work to a company called Navantia. Navantia loses 35 per cent on every amount of revenue it does. It is a state-owned company in Spain. They carried out the work that they carry out. For every 100 pounds of work, they lose 35 pounds. That is not a commercially viable operation. Since we have come to Scotland, we have learned a lot about state-aid rules, and we are not quite sure how that fits in state-aid when there are so many things that we have talked to the Scottish Enterprise and Scottish Government about that we would not be able to do and be compliant with state-aid. Right now, we are quite concerned about competing against businesses that lose money. If we are 10 per cent different than Navantia, we are 10 per cent above them. That means that our cost structure is still 25 per cent below them if they were not losing 35 per cent on every contract. I want to bring Peter Walsh in at this point and then Andy Wightman. I think that, for context, it is important to look at BiFab prior to the problems that found itself in November 2017. On the contract for the Beatrice project, it was manufactured in 26 turbin jackets, and that was supported in an estimated 1,400 jobs across the three yards, core workforce and agency workforce, the majority to be in agency. That is a level of employment that was supported by that contract at that particular time. It gives you a glimpse of the potential in the levels that we trade unions are looking to get back to in that regard. That is dependent upon the success of future contracts. It is important that we qualify that so that we can see where we were and where we are just now and the challenges and learnings that we need to take from the recent bids to get us back to that situation, if possible. Thank you. Andy Wightman. I am interested in following up with Unite and Gmb on the commitments that you believe were made in relationship to offshore fabrication work, particularly in the Concardin project in relation to BiFab's role. What commitments do you understand were made and who made those commitments? You could allow that, Peter. I will just refer to it. What we are looking at in the first instance, and I do not know of any commercial understanding that there may have been between the employer and the Scottish Government based on the investment that the Scottish Government has in the yards. What we can refer to is the consent letter, the section 36 consent letter for the planning process, the environmental process, to do with the Concardin project or COLE, as it was known. Within that, on page 43 of the consent letter, the Marine Scotland consent letter, it touches on the economic benefits of the project and what that refers to in there. I can read that to you if you grant me the time to do that, just to tell you what it says. On page 43, the statement says that the economic benefits material issues must be taken into account as part of the determination process. On page 44, it goes on to further say that an environmental statement makes a commitment to the construction of the substructures, which is expected to be undertaken within a Scottish port facility, and that it is likely to include a significant level of support at regional UK-wide level. The question that we have in there is then why is that not coming to pass if we are operating on that understanding within the letter of consent? Those were comments made in a consent letter, which has got nothing to do with the commercial implementation of a project that has got to do with the consent for the development itself. I am not privy to the commercial details, which I am sure you will understand. However, if there is within Marine Scotland an understanding that there would be worker value from the project and that working value has not emerged from the project, it stands to the reason that it is a reasonable question to ask why that is not emerged. Why then do we have those commitments within the consent process if they cannot be delivered? We can follow that up with Marine Scotland. Does anyone else wish to make a comment on that and respond to that? I think that it would be reasonable of the Scottish people to understand why they would have such a consent letter in there. The consumers in Scotland pay a levy in terms of their bills and electricity bills for renewables to be put in Scottish waters, so it is understandable that you would have that type of documentation. If people are paying for that, you would expect some manufacturing of that to be based in Scotland, so I can understand why it would be there. Whether it is legal or enforceable is another question, but I consider principles of why it would be there. I think that Gordon MacDonald wanted to come in at this point. I was just looking for a point of clarification more than anything else. I was trying to read through the papers that we had been given to understand the relationship between different organisations and companies about how those contracts were awarded. I came across a company called Cobra Wind International. How do they fit in and how contracts are awarded relating to the Concardin project? Sean might be better placed to answer than myself, but they will be the CFDs, really, to get awarded this and then tier 1s and tier 2s would emerge from them. Cobra was a tier 1 contractor. Ron Concardin and they would have been our client had we been successful. The way the wind industry is working here is you have the developer and then you have a tier 1 contractor and then subcontractors or tier 2 contractors. Cobra won the Concardin work and they were actually owned by the developer. So then they tendered out the work. Nevantia won the award by 10 per cent lower than us. What bothers them there for me is that Scottish taxpayer and rate pair subsidises the CFDs and yet they make a commitment of 60 per cent of work or a certain amount of work to be done in Scotland and then there's nothing to behold them to that. In Newfoundland, where DF Barnes works, we have these local benefits agreements and so when someone's going to develop an offshore resource, they make commitments to the Government of Newfoundland that they will do a certain amount of work in Newfoundland. If that doesn't occur and they break those commitments, that company is then find a value. We had one developer that decided not to do some work there and it cost that developer $150 million. When we see commitments from developers in most jurisdictions, they either live to those commitments or if they don't, there is some form of penalty to pay because Scotland is doing a fantastic job in the UK Government of bringing in wind development and actually lowering the cost of wind over time with the 8 megawatts that Gigawatt has been installed and yet on some of these projects they're getting no direct benefit on the infrastructure and that really is a travesty that needs to be addressed through either regulation or government intervention of some sort. You're saying that this Cobra wind international is owned by the developer and is therefore a lack of transparency because looking at companies house, this company was only set up a number of months before the contract was awarded with a share capital of £100, and it just seems a bit surprising. Is there enough due diligence taking place in companies that are bidding for contracts? Do you want to respond to that, Bill Alkington? Are you meaning that enough due diligence is being done by those who are giving consent? I think that someone from the Scottish Government should answer that. It would be hard for us to tell. That would have been done before we were in the picture. I think again that it's important to put into context what that looks like. The Cobra wind international being either part of or closer in line to the ACS group in Spain. In Navantia, the state ship builder, which is 100 per cent known by the Spanish state, is currently sitting on £390 million worth of debt. The five foundations for the Concardin project that Navantia will manufacture now, which is £1.25 million, will work 15,000 tonnes of steel. That's the extent of the work that we're trying to compete for that we aren't getting. For the Scottish project, which is, Concardin is more important in terms of its symbol, not necessarily its size in comparison with other projects. For example, Mor East is for floating offshore wind, which we are potentially looking at as an X-generation technology within the industry, I understand. I've seen the Crown Estate reports that say that floating offshore wind is forecast to support £33.6 billion of GVA, supporting 17,000 jobs by the middle of the century. It was an opportunity for Scotland to get to the forefront of an emerging industry. Now that work will be done in Spain. Coming back to the Marine Scotland consent letter, I think that the questions that need to be asked are what were the expectations of ministers in terms of employment, why did the commitments in the consent notice not come to pass, and what do we need to learn and do to ensure that it isn't repeated in future? Pat Raffer, do you want to comment on that? I think that probably from your view sitting, it doesn't look like due diligence has been taken place in terms of the work that are in our contracts. As Peter has said, for Mor East, you see Demi, then Smolders, Concard and Micober, then Navantia. You have to question about European legislations and how strictly we seem to be abiding by them, but it seems to be getting ignored by the Spanish and elsewhere, which is really quite concerning for us. We were told many times about Scotland being the new Saudi Arabia for renewables. I think that if we continue in the way that we are in terms of how those contracts are getting awarded, then we are certainly not going to be the Saudi Arabia renewables. They will be getting built in Saudi Arabia and shipped across here. That is something that we need to try to make sure that there is no harm. Andrew Jamieson wants to come in. I just want to echo some of the earlier points that Peter made. Concardin is relatively speaking a small project, but an important project nonetheless, because it is pioneering floating wind technology. We all want to see skills transfers from the oil and gas sector that Scotland has long enjoyed the benefits of transferring more and more into our future prospects for offshore wind. Floating wind is the answer in a more medium to longer term route, because it is more expensive to do currently than the cheapest best option. I think that credit needs to be given to the people who are doing the Concardin project for showing the market the way forwards. There are questions to be asked about where the orders went and not taking that away from anybody in here. However, it does raise the point that there are different technology types out there that all need to be looked at. Are we looking at monopil construction? Are we looking at jacket foundations? Are we looking at floating sink concrete-based foundations? Are we looking at floating wind foundations? There are lots of different options to be considered in the marketplace in the future. What we lack is a big strategic overview about where the market truly headed. For the manufacturers, what should they be investing in for the medium to longer term futures? As they get it right, we do not end up going round circles and doing it twice. Other countries have already made those decisions, which is why they have got scale that is tending to outpace anything that has happened in the UK—I will not just say Scotland, but in the UK—and they may well come unstuck, because you might find that the technology choice in the future moves to something else. However, it is showing that the ultimate thing for me is to truly examine how our esteemed colleagues to the right of me here at BiFab and others improve their level of confidence in what it is that they need to invest in and their yards to get the scale to compete with what is naturally happening overseas. I absolutely agree with floating wind being a game changer for the future, but the difference between the technologies does not really matter for us to do the fabrication if we are competing against companies that are allowed to lose 35 per cent of their revenue. We are not going to be able to commercially compete with that if the work continues going offshore. If you look at their tax rate, they are making thousands of jobs in Spain and basically cutting it off at what it would cost them from a tax perspective—the income tax that they get from the workers. None of that is happening in Scotland. As time goes on, the Scottish industrial complex will be hollowed out and it will mean that work keeps happening and will not go offshore. We would recommend that something gets looked at for the bidders on those projects if they have state aid, if they should be pre-qualified and reviewed by a regulator of some form to see if they abide by state aid rules because that is the only thing that will change the outcome of those offshore companies that are supported by their Governments to this extent. We will never be able to compete with them on any of the technologies if that is allowed to continue. I was going to ask who's job is it then if there is the allegation of state aid and unfair subsidies in other countries? Who's job is it to challenge that and raise that? I know that that's happened here, that Glasgow City Council and others have been challenged about state aid. Do Scottish Enterprise have a role in that? Should they be raising it with the European Commission? Pat Rafferty. It's a good question. We would try and say that the Scottish Government should have a role in that and Scottish Enterprise, but it could be challenged by the companies that they like so by, but even for that matter, from a true dream perspective, it could be challenged. Peter Welsh. The short answer is all of this. Bill Alkingdon. In other jurisdictions, what we've seen happen when this type of competition is in the mix is that the regulatory regime sets up either a bid depository or a qualification process so that all bidders are on an even playing field. We have no problem with the facilities here in Scotland, what we have in Fife and Arnish. We can compete with anybody in the world if people aren't on a planned basis losing 35 per cent of their revenue or more. Andy McDonald. I was just going to add a comment that, as Peter said, if there is evidence of state aid breach, it's collectively for us to challenge it. The challenge is finding evidence of it. The original question that, as Bill said, we've advised the company here heavily and quite openly on how to stay within state aid rules, given the work that we've been doing with the company here. The bids that they make are state aid compliant, but in terms of international competition, the company could challenge if it wished and others could challenge if it wished, if there is evidence of a breach of state aid. I'm not in a position to say that there is, and we're not the regulatory body that puts these contracts in place. Jackie Baillie. Forgive me for cutting to the chase, but the dogs in the street know that there's state aid breaches in Spain, and you can point to companies in Spain being given an advantage that companies here don't get. I understand that it's everybody's responsibility to go challenge these things, but I'm quite a simple person and I can't help but wonder why aren't we doing the same as happens in Spain to create that level playing field. I wonder whether Scottish Enterprise specifically and Highlands and Islands Enterprise have considered this. In the context of are we in a position to somehow subsidise it? It is clear that other governments are subsidising. So, while it may be productive to go away and challenge that, surely the quicker route in is to do what other countries do, which clearly must be in keeping with state aid, because nobody has yet challenged them? My apologies, but that's not to my mind our position for Scottish Enterprise. We would have to be guided by the Government, which we are the economy developed agency. You provide them with advice too, don't you? We do. What would your advice to them be on this issue? If there is a way of doing this, we are not in a position to change state aid rules or to breach state aid rules. We have explored how we can support the company within the state aid rules, and the support that we have provided thus far has been within that until I allow them to stay within that so that they are not challenged. I think that the question is whether other countries are doing things a certain way and they are within the state aid rules because they are not allowed to go out with them either, and they seem to be succeeding. Why are we not? Is that not being looked at to say, in fact, that we can do this too? If it is within state aid rules, then we will certainly look at how it could be done. Well, are you doing that? The issue is that we have looked at how to help the company get its costs to a point where they can be competitive. As Bill and Sean have said, without the Spanish company's ability to basically operate at a loss, the company here is competitive. Andy Wightman We do not know whether the state aid rules are being followed or not, is the clear answer. The prima facie cases are not being followed, they are being breached. It is everyone's responsibility but, ultimately, the people who have the resources to be able to take a case to the court of justice on state aid is the Government, either the Scottish Government or probably the UK Government. Has Scottish Enterprise or Hylins and Enterprise provided any advice to ministers on the likelihood of success of any challenge that they may bring? I do not know the answer to that question, but I really can ask my colleagues and check. What is your view as to whether state aid rules have been breached or not? I have not seen evidence of state aid rules being breached. Nobody has provided me personally with evidence of that, and I cannot comment on what others have used. Is the news that the Avantia bid was making a loss of 35 per cent? Is that news to you today, or did you know that before? I did not know that personally before. I cannot speak for my colleagues and the team that I worked with with BiFab, but I did not personally know that. Is that news to you today? It is news to me personally, as I say. I do not know what my colleagues and I have worked directly with them. I have not been involved in working directly on the company of Shove. That has not been my role to date within this. I was asked to come because of the broader issues. Sure, I do not understand that yet. I can ask if the information was known. The other point on that, however, is whether that is a result of a breach of state aid rules, which is part of the question, or whether it is because of the structure of the company. Do you understand that BiFab is an account managed company? Yes. It seems reasonable, given that we are providing some state support to a private company, that if that company is being disadvantaged by a breach of state aid rules, that a view is taken by the Government agency who is supporting that company, and that appropriate advice is given to ministers in Scotland and the UK as to whether they believe that a state aid rule breach is taking place. I would be very interested in, in due course, if Scottish Enterprise could correspond with the committee on its views on that matter. I can add, if you could, as well after the session, write in further points that you would like to make to the committee, if it is not possible to respond in the time limits that we have here. I am just wondering before we move on to other committee members' questions. Audrey McKeever, is there a comment on that from the point of view of your position for Highlands and Islands Enterprise? I would just like to add that, from a state aid perspective, clearly any support that is being provided to the company or to any company that we engage with, we absolutely make sure that we do that within the confines of state aid. If there was any challenge against that, the risk is not to Highlands and Islands Enterprise, the risk is to the company, and we would never want to put the company in that position. In terms of the evidence gathering around the intelligence that we are getting now, around the contracts that are being awarded, it is not new to me today, but it is relatively new to us in terms of the learning that we are getting through the more recent contracts. We are very much working with Government, with Scottish Enterprise, to really understand the nature of this, and how do we respond collectively to support the company and support the broader supply chain and offshore wind? I just want to bring in, first of all, Jamie Halcro Johnston and then Rhoda Grant. Thank you very much, convener. Just on this point, is there not a risk that, if has been suggested, we simply ignore state aid rules, that that will just lead to further undercutting of the price that is going forward? Secondly, if, as is suggested, people feel that these state aid rules have been breached, what legal advice has been sought either by BiFab, the unions, or either of the enterprise bodies on this that might give a clever indication or use some kind of legal ground? First of all, I do not want to leave the impression here. We would not want to leave the impression here that BiFab has been out there by itself with any kind of Government support or advice here over the last number of months. The Government and Scottish Enterprise have been completely 100% supportive of us and we have had long discussions, long meetings about the challenges and where they can, Scottish Enterprise have been helping. Our ask of them, or of Government, has never been to match the subsidy that Spain are giving. I think that would probably be a mistake. Our ask is that we have some way of ensuring that when a developer makes commitments, that he is regulated to stick to those commitments. Yes, they are regulated to stick to those commitments but also that in terms of state aid that companies that are not necessarily living up to state aid rules be excluded from the bidding process. So all of you can look up Navantea's financials. You can see year after year they lose 35% on their revenue and would that qualify if we were losing 35% of our revenue and Scotland, the Government of Scotland or the Government of the UK were subsidising us that 35%. It would be pretty clear from the advice that we have gotten from Scottish Enterprise and others that we would be in contravention to state aid rules. So when the developers are selecting tier 1 and tier 2 contractors, those contractors should have to show that they are abiding by all state aid rules and if there's some form of regulatory bid depository, the Government would be able to actually see it. Going down the rabbit hole of trying to match subsidies, I wouldn't recommend. I'd recommend on the flip side controlling who's bidding and if they're not living up to the requirements of state aid, they should be excluded from it. I think that we would have a bunch of people back to work. Yes, just on that. Can we turn it slightly on its head? Given that many of those contracts need some kind of government consent or planning permission or the like, and some of them are actually let by a Government, surely in part of that we could make part of those regulations and indeed if it was a Government contract stipulate that it had to be shown that they were adhering to state aid rules, that there was no dubiety whatsoever. Could we use the powers that we have, and I'm not saying that we shouldn't go to court to make sure that they do abide by state aid rules, but are there things that we could put in place very quickly to say that companies not abiding or being seen to abide by state aid rules should not be let contracts? No, we would agree with that. I think that the question was, is there anything that could be done relatively quickly to seek to bring about that result? Commitments from the developers to live up to the consent letters would be one, really that's a local benefits type agreement, and two, as you may 2019, there's going to be other contracts for difference let, and in those consents I could see no reason why you could not just enforce the fact that anybody bidding on the projects should meet all state aid rules. But there would have to be follow-up and follow-through to check that that was actually carried out and then enforcement through the courts, if need be. Just on the question of financial support and government support, what financial support has the Scottish Government and the enterprise agencies given by FAB over the past two years, and what conditions were attached to that financial assistance? As a matter of public record, prior to us acquiring by FAB, there was support provided to the company in April of 2018 in the tune of approximately £25 million. Was that in the form of a loan or equity-linked assistance? What shareholding does the Scottish Government have? The shareholding for the Scottish Government is a commercial arrangement. I don't think that I'm the right person to answer that. We have confidentiality and we have a competitive position to maintain. The funding was provided to by FAB prior to our acquisition and we bought the majority of the company as a going concern. Are you able to tell us some of the conditions or the main conditions attached to the financial support provided by the Scottish Government? In what respect? In terms of repayment, does the Scottish Government get a seat on the board? Does the Scottish Government get input into the strategic planning of the company? First of all, the conditions—we won't get into the details of the conditions or the details of our financials at this point in time—but the conditions that the money was provided on were market conditions, as advised by third party accounting firms. The repayments will be based on market conditions, so they are treated as debt at this point in time. Other than that, we won't get into anything else on the financials because there is a competitive disadvantage to displaying that to all of our competitors. I think that answers your question. Is there anything else? I guess the question of shareholding. Does the Scottish Government have a shareholding in the company? Yes. Can you tell us what that shareholding is? It's not actually determined, depending on the drawdown of any money, so that will be obviously a minority share, but it's not actually determined. Right. In terms of the influence that the Scottish Government has on the management of the company or a seat on the board, what influence or role does the Scottish Government have in terms of the plans for the company going forward? The Scottish Government doesn't necessarily sit on an official position on the board, but it attends our board meetings. I'll come back to Andy Wightman before we move on to another area with questions from Colin Beattie. Andy Wightman. I understand that Parliament was told last year that the Scottish Government has a 28 per cent shareholding based on its existing loan facility. That could rise to 38 per cent. Yes, that's right. Potentially. Just for the record. Colin Beattie. We've heard a fair bit about the issue about state aid and so on. I'd like to have just a wee look at competitiveness and so on outside that. We've received evidence that the Scottish share of the offshore and wind fabrication market is only about 10 per cent, and that the North Sea oil and gas fabrication market is somewhat the same level. The share of the North Sea decommissioning market is about 15 per cent. To me, those seem pretty pathetic figures, given the opportunities that we've been told exist in this market. We've heard about state aid and the impact of state aid in other countries and how that might impact on the competitive advantage or disadvantage. Outside of that, is state aid the only thing that's impacting on Scottish competitiveness, or are there other factors that need to be taken into account? Is there something out there outside of that? The yards that BiFab has—two of them specifically—have the bones of being world-class facilities. There is some investment that is required, especially in methyl, to make it world-class. We've talked with Scottish Enterprise. I've toured yards around the world. I've done a lot of work, had a joint venture in Korea. We've worked with Chinese yards. We've worked in the US yards and in Canadian yards. The bones of a world-class facility are there in methyl and the Irish facility. BiFab, the Burnt Island facility, is not quite as up to par as methyl. However, methyl needs some infrastructure spend over time to allow it to be easier access from a logistics perspective so that it can be an offloading point for all offshore wind. It's so close to the fields that it's a very logical perspective. There are other things like—right now, it can get very muddy. Occasionally, it rains. It needs concreting in the yard and drainage. What we've offered is to do a tour with Scottish Enterprise and others to show them some of the other yards that we've worked in around the world and how we can get to an actual world-class facility there. One of the things that attracted us to BiFab is that it's very close to having world-class facilities, but it needs a little work and a little help. You're talking about getting Scottish Enterprise involved. Does that mean that you're hoping for further funding from the Scottish Government to achieve that? The methyl yard is not owned by us. We're leasing it from Scottish Enterprise. We're the tenant, so we need to work with our landlord, so to speak, on what type of improvements we can do. I'll take that as a yes. That's BiFab, but what about other yards? What about other facilities in Scotland? What about the competitiveness there? Again, I'm trying to park the question of state aid aside, because that's a particular issue that, hopefully, eventually we can get our hands around. What else impacts on competitiveness and the future prospects? Maybe this is something that Scottish Enterprise or HIE might like to comment on, because they're very much part and parcel of this. Nick Sharpe, Peter Welshon and Audrey McKeever wanted to come in, so perhaps in that order? Thank you. As you know, Scottish Renewables represents 260 member companies working in all parts of the renewable energy industry offshore when just being one of them. We've held extensive conversations with those members ahead of today's committee, as we do constantly. We've seen a lot of consistent messages come through from our members and some of them are supply chain members and some of them are developer members. There are a number of known issues that address the question beyond state aid, but as far as we're concerned, those issues are fixable. It is possible for Scottish and UK yards to be competitive in offshore wind, but I'll just talk briefly to those and then perhaps we'll go into a bit more detail later on when we can. The first one is a historic lack of investment. Bill Alkinson pulled that out there quite clearly that money has not been invested in the bi-fab facilities and it's left bi-fab at a competitive disadvantage to yards that have moved ahead. Those yards primarily are in Europe and that has a lot to do with the way that offshore wind contracts are attended. The tier one structure, the EPC structure that Bill spoke about, I could go into a bit more detail if necessary, but yards in other countries have invested when we haven't invested and have moved ahead. The fundamental difference is that those yards are now capable of doing process manufacturing of large pieces of fabricated steel 24 hours a day, 365 days a year, to equality and at a cost that at the moment with the lack of investment that we've seen in UK yards in general really at the moment we're just not capable of by and large. You did ask about better examples in Scotland and the UK more widely. Those examples do exist and in our membership alone CS Wind in Campbelltown is held up as a really good example of a company who's taken a similar level to the Scottish Government's investment in bi-fab and really turned around the way they produce very large, they make turbine towers, so very large pieces of steel. They sought to improve their process to the extent that they doubled productivity in a year between 2017 and 2018, which is really impressed industry. I've heard that from the conversations that I've had over the past couple of weeks that that's really impressed industry, so we can talk more about those things, but there are certainly things that can be done here and the issues are fixable. Peter Wells I doubt that we need investment. The question is, where will it come from and how much, when there are other people that would probably be best placed to answer that and what's feasible, but what I would say is that more than that we need an industrial strategy and there to, there hasn't been one. We need this for offshore wind and probably more broadly for the renewable sector. The reason being is that there are projects still coming down the line. I've seen media reports that have suggested that we're coming to the party late in the day. That much is true, but industry has not passed far from it. And we're told continuously that these are the jobs of the future. So if Scotland is going to compete for its share for the jobs of the future, then we need the right investment conditions, but we also need the right strategy as well. I think that that's incumbent upon all of us to do that, but that's the challenge that we need to set out from today and take forward into the summit that's coming next month. With the Scottish ministers, the UK Government, the industry and the unions. An industrial strategy is needed to see what the future looks like and what can be achieved to this point that's lacking. Audrey McKeever and Andy McDonald Thank you. In terms of the infrastructure investment, if I may be a bit parochial in terms of islands and islands, over the last decade, we've witnessed over 170 million total investment into key ports, harbours and infrastructure sites, and that's been a mixture of public and private. I just want to highlight, for example, Nouga energy park and the 56 million investment there, led by the global energy group, including just over 5 million from the islands and islands enterprise. If you were to visit that site today, you would not fail to be impressed by the scale of activity happening there. Siemens are currently operating out of Nouga energy park at the moment in the build-out of the beauty soft shore wind project, which is currently being built near completion in terms of the build there. Other sites close to that include the Port of Cromarty Firth, which is currently in phase 4 expansion, and that is predicated upon securing the contract from the Murray East for build-out of the Murray East project. I just want to highlight that there are indeed areas where investment is being made and the benefits of that investment are starting to be realised in terms of contract secured. I do appreciate that build-out phase, not necessarily the high value manufacturing on a long-term sustainable basis, but it is a start. It is about building the cluster of activity and the momentum there and really just looking ahead in terms of an industrial strategy picking up from the offshore wind sector deal. Indeed, the cluster approach is what we are working with industry, with local authorities and with Government on. We are looking at, for example, a north cluster that includes those locations that I mentioned, but actually very much the broader supply chain. I am really just worth highlighting that up in Wick. We have the O&M facility for the Beatrice project. That £20 million investment, SSE-led investment, is really doing wonders for that local town. In terms of jobs there that will be created, we have estimated £100 over the lifetime of that project. I was just really wanting to highlight that, although we absolutely do appreciate that there are real challenges in terms of getting the high value and jobs that we have really aspiring towards, we really want to recognise that there are some successes as well. In terms of competitiveness, my example that I was going to highlight was indeed CS wind, but Nick covered that very well in terms of the productivity improvement that CS wind has undergone. Indeed, even with that, they still, as a company, have challenges in terms of competing in what is a commodity market for towers and indeed a global market. However, working with CS wind and others, we are looking at tools that are, I suppose, as enterprise agencies such as the Manufacturing Advisory Service to work with companies to see how they can drive efficiencies in their processes through increased automation or whether that is increasing the output. In terms of other areas of productivity, not just on the infrastructure side but absolutely on the company's side, through the account management approach that we have with Inhansinans Enterprise, Meridian and Scottish Enterprise, we do work intensively with those companies to try and understand what improvements can be made. Again, I am just highlighting that there are indeed other companies that are already picking up orders from the offshore wind market, particularly in the marine services side and project management side. So, again, working with those companies is about how we can grow that share of the business. Mr Sharpe, you said that the issues are fixable, so I wondered if you could give us your top picks of issues to be fixed, how they will be fixed and by whom, whether that is industry, the Scottish Government or the UK Government. Thank you for the question. I think that you are right to mention three bodies there, and there is probably more as well, supply chain themselves have a role to play unions too. The historic lack of investment at BiFab specifically is an issue that can be fixed, and it is not necessarily an issue that requires just the spending of money, it is a mindset change as well. That has really come through from our discussions with industry, companies that have managed to compete in offshore wind where they were not previously have really moved forward. Smallders or a Belgian company have a site in Wallsend in Newcastle that as well is held up as best practice really, and Smallders have invested, but they have not just invested money, they have invested time and knowledge and management practices, and that has enabled that yard to do things that it would not have been able to do previously. It is not just the investment of money that is required here, there is the investment of time and knowledge as well. Our hope is that DFBarns bring that wider knowledge and can take BiFab beyond where it was previously. There is also an issue that has not been addressed so far around financing and bonding, and those are issues that contractors across all industries face, but specifically in offshore wind, which I can talk to briefly. An offshore wind project is a very large infrastructure project. Beatrice, for instance, is the largest private infrastructure project in the UK at the moment, £2.6 billion. The companies that develop these schemes cannot do so with off-balance sheet, they do not have the funds to do that, and they must go out to the investment market to get those funds. Investors are entirely focused on risk and mitigating that risk. As part of that process, we want to work with people who have done similar projects in the past and projects of a similar scale that have the manpower, if you like, to deal with sometimes hundreds of contracts at once. That is why they ask the developers very often to give over that risk to a tier 1 contractor. We have seen that with Cincardin, with Cobra and Beatrice, too. What is often neglected here is the finance element of that. If there was a role to play here, it would be to make the financiers more comfortable with the risk and present to them the correct impression that the lack of sight of the pipeline of offshore wind in the UK is broadly solved now, as the sector deal is broadly solved. We know that we are going to have to more than double the offshore wind that we have by 2030, so there is a pipeline now of predictability. The finance community needs to understand that. If we can deal with the way that they view risk and investing in Scottish projects, there is a real mileage that could be made there. Government, certainly, as shareholders in BiFab and as shareholders in Scotland PLC, have a role to play. A job for everyone is the answer, but only when a lot of the elements come into play together will we see contracts being awarded a sizeable scale. I think that Andy Macdonald and Bill Elkington want to come in and then we will come to questions from Dean Lockhart. It is an add-on to the answer that Audry gave, but in terms of the rest of Scotland ports and also to pick up a question that you had asked about further investment alongside Bill's points about the site at Fife. Scottish Enterprise is the landlord effect of the energy technology park in Fife. Last year, we invested in a hard-standing infrastructure, which is part of the point that Bill made, to piling works alongside the key side as part of the support as DF Barnes was coming in to the site. We are in discussion just now about what additional works might need to be done on the physical site and then pick up the next point with the company and what might need to be done in terms of processing things inside of the areas of support. We have also, more widely—and this is partly Tim's to Beattie's point—in terms of the broader industry that we have supported for the past few years in a specifically focused support programme for companies that are looking to build a way in to engaging with the offshore renewable sector and the wider offshore energy sector, but particularly in the fall-up to the downturn in the oil and gas sector when there was opportunity to engage companies there. We have put about 200 or so companies into an offshore expert support programme, which is partly funded for a couple of days of free support and companies can engage for further terms for four days support beyond that. We have something in the order of 57 companies that have gone through that this year as well. Specifically, at the end of that, companies that have taken it up have been successful. We have had three companies in the last six months or so gone on to win something in the order of £35 million worth of contracts. We also work with all the developers and have done for many years to try and sit within the structure of their purchasing and procurement departments to understand what opportunities may come out of that and to help them understand what the Scottish supply chain looks like. To bring the two together, we have run a large number of events, many of them in partnership with colleagues in the Highlands and Islands Enterprise. Around the opportunities, we had one just towards the end of last year with Inchcape, with the developers there, which had more than 100 companies at the end, 60 or 70 meetings, one-to-one with the developers and with their tier one appointee companies, to try and understand where the opportunities were and to try and bridge some of this challenge about what you need to understand about how to work with each other into this space. In terms of the physical infrastructure and the ports, we supported work in Dundee some time ago. More recently, the Aberdeen city deal has funded quite a bit of work in the new harbour in Aberdeen. A lot of those investments are around the potential for future commercial opportunities, some of which will be related to offshore renewables. In the same way as Wiccan Fraserborough has benefited from the longer-term O&M planning for the fields that are in proximity to them, we are working with the developers and anticipating that we are able to do similar exercises for the longer-term O&M for the fields that are being constructed or due to be constructed further down the east coast of Scotland and into the fourth. On your question of competitiveness, on our Concardin bid, we were second to Newantia, 10 per cent higher, and they lose 35 per cent a year. Their cost structure is actually above ours, but with the losses that they take year after year, it is very difficult to compete. In regards to the smolders comment from Nick, the work on this next Murray East work is mostly being done in Europe, not in the smolders yard. It is only final assembly. In fact, on that project, we were bitter to smolders and had a lower price until the tier 1 contractor retendered the work and asked for a JV. Scottish companies can be competitive. We need to invest more in the yards to make them more competitive, but the area in which others from outside are recycling bids or losing money is very difficult to compete with. On that particular point, you have repeated a number of times about the question about state-aid rules being flouted in other countries. Do you have actual proof of that other than the allegation? Do you have any documentary proof or anything that could be used as evidence? I am not talking about this in the court a little bit. It is something that we can get our hands around. I suggest that we read their financials and explain to me how the I do not understand state-aid to the experts in government, but how can a company lose 35 per cent a year and be funded by an opposing government beyond the side of state-aid? I do not understand how that could be. The last point that I would like to finish on making is that the finance and bonding element that Nick brought up is a serious aspect where the developers are trying to shift risk from the developer to the tier 1 contractor to the tier 2 contractor, and that creates bonding and financial guarantees that are very, very onerous for a private commercial enterprise to take on. It is much easier for companies controlled by a state or a settlement wealth fund to accept those bonding and financial guarantee risks because they have the entire state behind them, whereas it is very difficult for a commercial enterprise to accept those types of risks. Andrew Jamieson and Pat Rafferty wanted to come in briefly. Ms Constance asked what would be the solution in terms of what needs to be done and who should pay for it. I think that there is a lot of history as we have talked about in this meeting, and we are where we are today in terms of the construct of our industry. My suggestion on the way forward is to look at leaving the state-aid issues aside. It needs to be explored, but on the assumption of there is competition out there in other countries, can we get there? So what does it mean in terms of do we have all the key component parts that are required? As a nation, not necessarily for individual yards, but how we would ever compete on a level playing field, assuming that it exists just for one second with other countries. That suggests that we need to look more deeply into what is the scale of infrastructure that is required in terms of key site and the crane age and big heavy machinery and welding equipment that comes into the fabrication processes. Have we got the skills that I will assume that we do, but we need to look at it? Have we got the workforces that provide, on a longevity basis, the skills and membrane that we are going from one off-oil and gas-style production to serial production? That is a very different nature and way of approaching things. So there are quite a number of key things to take into account and I am not sure that we have a big picture about what is it going to take in order for Scotland or indeed the UK to compete with those other countries. My company, as part of the recently announced sector deal that Audrey mentioned, has proposed a programme to help support the growth of supply chain indigenously in the UK, which currently the industry has agreed to fund the tune of £100 million over 10 years, so £10 million a year. Some of that will be benefits in kind. In terms of hard cash going into it on an annual basis, it starts at £6 million. That is not a lot when you spread it right across all of the UK, but within that £6 million we are looking to see how we can enhance. We are looking at two or three different things, but, importantly, we are looking at, for those in the supply chain, how do you improve your efficiency? We would be talking to BiFab, but what can we do to help to provide some answers on the way forward? The second thing is, for those not in the supply chain, how do you get into the supply chain? How do you lower your barrier to entry? What are the traditional things that this industry has long suffered from in terms of not understanding what the next product is going to be? How can we help new companies to come into that space? Those new companies might have products and innovations that would help the manufacturers such as BiFab to move forward. The sector deal was only recently announced, and within it, in recent weeks, we have taken to the industry council, who is the ultimate sponsor of the sector deal with the UK Government. We also undertake a UK capacity and capability study to look at the bigger question that we are all talking about. What is it? Exist externally to the UK that we need to compete with, and what would be the steps that would get us there? We are going to undertake to look into this and work with industry colleagues to look at that more readily. My answer to Ms Constance's question is that there will be a role for the industry itself in terms of the developers in some way. For example, can they be clearer on the pipeline of orders that they have and expecting in the future? We do at least understand, and I am taking it into account with Bill, saying that it might not make so much of a difference, but it will make some difference, as it monopiles, as it jackets, as it whatever, for floating winds. We need to understand that more. There is a role for the supply chain themselves about what they are going to invest in, and then there is a role for the public sector in terms of providing other assistance to get there. I see within the industry itself a very strong willing to have the UK and Scotland have as much indigenous content as we can possibly muster. We cannot forget that it is a highly, highly competitive market. They are all elbowing each other on the face to win contracts for differences. That means that traditionally, historically, there has been very less inclined to share things and share learnings, and that is an opportunity with the sector deal to pull more collaboration into the sector than we have seen. That competition will still exist. That competition has served as well in terms of the prices that are on offer. Ultimately, for the electricity customers, that is a great thing. However, what we need now is an awful lot more collaboration across the industry and across the public sector about how we will move some of those bigger questions forward. We will hear briefly from Pat Rafferty, and you have mentioned contract for difference, so we will come on to questions from John Mason after that. We have limited time here, so we will try to cover matters. Pat Rafferty. Thanks, convener. I will make a general point. It is worth reflecting on a wee bit, because we think back to the 16th of November 2017, when we had thousands of people marching in the Royal Mail in an effort to try to save their jobs, communities and yards in Fife and Arnish. To be fair and to give credit to people, the Scottish Government stepped in and gave a lot of assistance at that time to ensure that it did not get into the administration and that we still had the yards there, as did JD Driver and DF Barnes. I suppose that the concern that I have just now is that we make sure that we still have JD Driver and DF Barnes competing in that marketplace. It does not feel like companies of that nature are flogging a dead horse. They are not going to get anywhere here, and they are competing in a marketplace that does not have a level playing field. A lot of the purpose of the day for me is to try and make sure that we understand where the feelings are and where the lessons can be learned going forward. It does create a better level playing field for the likes of the airbands. We have given their commitment to Scotland going forward. It feels like we are picking Havoc Mackey's up against Barcelona. We need to get ourselves into a shape that we are perfect for purpose and can compete for those contracts that are there. I do not get ill-bode out of the marketplace all together in my loose companies to like to say DF Barnes is there. The convener said that contract for difference has been mentioned, but I would like to try to explore that a little more. I have to confess that I am not a technical expert on some of those terms. From what we have been briefed, the strike price for Murray Offshore is £57.50 per megawatt hour. Hornsea is similar, but I will try to know that offshore windfarm is £74.75, which is quite a lot higher. How much is that a factor in this whole equation here? For example, does it mean that prices are being driven down unrealistically and therefore tier 1, tier 2 are having to go for the very lowest prices that they can possibly get, no matter what? It is probably worth explaining a little bit about the CFD and how it came to be and how we are where we are. Until 2014, renewables were supported by the Renewables Obligations Scheme, which built what we have now in Scotland in terms of especially onshore wind capacity. The move to a competitive auction system mirrors what is happening around the world. Increasingly, renewables have been driven in cost terms down and down and down, and that is a global trend, not just a UK trend. The UK Government has chosen to lock onshore wind and large-scale solar to the cheapest forms of renewable energy out of the market since 2015. What they have said in their manifesto is that they want the consumer in the UK to have the lowest energy prices in Europe. When I started at Scottish Renewables five years ago, we were wondering whether offshore wind could ever get to a level of £100 per megawatt hour. Rightly, Moray East is down to £57.50, which is truly incredible. The price journey that offshore wind has gone on supported by innovation to a large extent, so we have seen much larger turbines, which are much more efficient and can get much more power from the same resource. All that has led to costs for offshore wind being very low. We are also doing a study here on the construction industry, and it seems to me that there are some parallels here, because there is an argument in the construction industry that because we concentrate so much on price, it reduces the leeway that people have for innovation and maybe for supporting local companies and that kind of thing. Is that an aspect that is in here as well? I think that the UK Government's decision to concentrate on price for consumer is something that, as an industry, we just have to work with. Our members have to submit competitive bids to get that contract for difference. If they don't get the contract for difference, the project will not be built, and there won't be any supply chain benefits at all. There will be no project. In terms of innovation, two things—really, Andrew—can speak much more in much more detail about innovation. It's the role of the offshore renewable energy catapult to push innovation into offshore energy, so I'll leave that to Andrew. The sector deal is a really big thing for industry, and I know that colleagues across the UK have worked with the UK Government for a couple of years on that. Certainly, at Scottish Renewables, we stepped up because we wanted Scotland to have the best representation possible in that sector deal. Parts of that are about driving innovation, and that is an accord that is signed between the UK Government and industry. Obviously, it's more challenging if costs are lower to do innovation, to find the space and the bandwidth to do innovation, but it's still happening. It has to keep happening because the ambition is that costs continue to fall. I agree that the world-wide cost of wind, and offshore wind in particular, is dropping close to 50 per cent. However, those projects are $3 billion. For example, Beatrice was in $2.4 billion. The UK Government sector deal is looking for 60 per cent local content. At Beatrice, the data that I've seen says that there was 4 per cent Scottish content. How are you going to get to 60 per cent when we're today at 4 per cent? If the difference between a fabricator-like gust and a fabricator-like nevantia is 10 per cent, that's 0.4 per cent of the total development. I don't think that will swing the price of the offshore cost significantly. That's where I'm really confused, the foundations and the piles that can be built in the UK and Scotland going offshore for such a small amount. The cost of the turbine is the main cost, and that's where other Governments have put substantial research in. All of that is being done primarily in Europe and Asia. It's going to be very difficult to get to 60 per cent without really concentrating on the foundations, the piles, etc. I would like to come back to local content in a minute, but I just wonder if anyone else has anything to say specifically about the contract for difference. Nope. We're going to develop the question about local content because there's something we understand called the Murray East supply chain plan. That seems to have certain targets, and presumably the idea was to create more local content. We've had some difficulty finding out some of the detail of that, because some of that has been redacted. Within that, for example, it seems to say that the winter buying supply contract is expected to deliver, and the percentage has taken out local content. The jacket substructure contract has the potential to deliver up to redacted again local content. The onshore electrical works and OSP's contract is expected to deliver again redacted local content. The question was raised, which I suppose I'm reiterating. How can we get up to that 60 per cent, and especially if we don't know the detail? I don't know if this is something that anyone actually knows about here, Mr Welsh. Problem then. If you look at the Murray East project, you're talking about a £2.6 billion project. 950 megawatts, consent given in 2014 for 100 turbines. It's going to power 40 per cent of Scottish households on 950,000 homes. The consortium that's financing it, EDPR, Portugal, Diamond Green, Japan, part of Mitsubishi Corp, China Three Guards in Onge and France, EPCI tier 1 contractors, Demi Gosi. Lamprel will manufacture 45 jackets, a value of £160 million. Smoulders will manufacture 55 jackets. Their own value of that through the press release was €250 million. They'll manufacture those jackets in yards in France, Poland, Belgium and the north-east of England. They put that in the context of the Beatrice contract, which manufactured 28 jackets, supported 1,400 jobs. So we can make a best estimate there about the number of jobs that are going to be supported by the fabrication of those jackets at Lamprel and Smoulders. We spoke about the green shoots in Bifarberg earlier on, about the manufacture of the jacket piles in Arnish. It's a contract worth, if I'm not you guys can correct me, about £26.5 million. It's supporting 82 jobs. That's 1 per cent of the project value. That's the extent of the problem that we're looking at just now when we're talking about local content. If you're going to 60 per cent local content to there, look at what's happening in the more-east project. Let's ask the questions why that is happening. Right. That's what I'm going to ask you. What is that happening? Are we not setting ambitious enough targets? Are the targets not getting broken down? Once we do set targets, are they too vague? I think that the suggestion was earlier that we're not enforcing anything in this country. Is that the problem? We can tell you what I know about the competitors. I think that you've all got the brief on Lamprell should be before you just now. They're in a joint venture with Saudi Aramco. Within the joint ventures that they're involved in with the Saudi Government, you can see the breakdown of the investments that are getting in there. It gives you a glimpse of the competitive environment that we're trying to get a toehold in just now. I think that's the scale of the challenge, but if there's a specific question in there that you want to get it, it might not be me that can answer it, but we'll try. Are other countries managing to get more local content, actually, in the plan? Well, other countries are getting other content. Yes, that's part of the question. I'm looking at it the other way round. Why are other countries maybe substitating as an issue, so let's leave that aside just now. The suggestion was made earlier that other countries put a more specific point in the contract and then they enforce that contract, whereas we've left it too vague. Is that part of the problem? Perhaps there might be some more people around the table who might be able to answer that. I think that this is an important point, but we do need to recognise other countries for decades have run their industrial strategies very differently from this country. I think that we're making valid points, but you're talking about an entire nation, an entire approach from governments, where there's regional or national doing things very, very differently. I don't think culturally that that's what suits current thinking within the UK or in Scotland. We just don't do it. Other countries have, as I said, done it for decades, although at least it's stated or anything else that I can't comment on. It's just a very different way of how they run their manufacturing sectors, which we've all seen change very, very rapidly since the 1970s. That's what we're up against. Right. Are you saying that other countries, the Government, sees itself as partly responsible for the manufacturing sector, but in the UK it's been a very hands-off just to let them get on with it themselves? Well, I'm not blaming the current UK Government, but my experience from going into industry in the 1980s is that everything's been down the markets. That's what everything's been about. Compared to the European continent, they've been more contented by making strategic investments in whichever sector they wish to support. I'm saying that that's the scale of what we're up against. It's not something just for this element of one part of the electricity industry that we could suddenly fix. It's a very different consort. But yet, in another sector, Scotland has led the way. In Canada, we have admired for years. In eastern Canada, we have a small oil and gas industry, offshore oil and gas industry, and we've admired for years how Scotland has developed it over here and become world leaders, and to the point where they're exporting their technology and their creativity around the world now. So I don't think Scotland needs to look any further than the success they had in offshore oil and gas to look at examples of how it worked well. That the regulatory regime in Newfoundland copied the Scottish regulatory regime. But we did, in that instance, add local benefits agreements where the developers would have to live up to their local benefits agreements. One other point that I did want to make is that, on the first round, we were low-bitter on the Murray-East project. That bid then got recycled until we were no longer the lowest bidder. In other jurisdictions, what we've seen to deal with that is a bid depository, where the bids get submitted through an agency and then shared confidentially with the developer, but we know where we sit and it does not get recycled. The people that work for us in Arnish are very, very good. The people that work in Fife have the capability. Our role with our union counterparts is to make them as competitive as possible. We've been spending time and energy sharing what we've done in North America. We've now got a facility in North America where we're doing work on a Gen 6 rig that has never been done in Canada before. We can work with our unions to make those viable, but we have to have a better regime so that there's more fairness to get the local benefits. You said that, in Canada, there is this insistence on local content and then there can be penalties if that doesn't happen. Where should that be introduced in this chain? Is it at the CFD level that that's where it should be? The consent letter needs to be binding or that contract, that commercial agreement needs to be binding such that those commitments are lived to, and if they're not, there's financial penalties for the developer. UK ministers have made it very clear to the industry council as part of the sector deal that they don't see local content or indigenous content, because it's not always local, but across the UK matches what the industry has said it's an ambition and there will be consequences to how it supports the industry. The CFD routing has been a strong mechanism for showing that there are going to be future rounds of contracts. For all of us, we should be taking heart that there is going to be a pipeline of more projects coming through. UK ministers have made it very clear to the industry that if they don't see the growth in local content, that will get switched off. Follow-up from Andy Wightman and then we'll come to Jackie Rennie. It's just to be clear on this point. There are, as I say, three main routes by which Government can seek to implement the kind of local content agreements that you're talking about. One is the landlord lease, which would be the crown estate that leasing the land, the seabed. Two is the planning consent that was referred to early by Marine Scotland and the electricity consent regime. The third would be the contract for difference contract. Are you clear that it's the contract for difference bit of the agreement that would be the best place to do that, as opposed to the other two? I'm not clear on that myself, but I'm sure that there are people within the UK Government and Scottish Government that can figure out which one has the most teeth and how it does not create any state aid rules. We see it with other countries that have trade agreements with multiple countries and they all fit within those types of arrangements. Possibly join those up. I'm conscious that the Crown Estate Scotland, who have been consulting on their next leasing round Scotland, have been taking a view on socioeconomic impact as a factor in lease awards. I just wanted to highlight that. They may be taking that as a factor, similar to what Andrew Jimison is saying. The UK Government is saying that it might change its policy. The point is that is it proposing to put anything binding in contracts? It's one thing to wait an agreement or a competitive agreement as to whether someone should be awarded a contract. It's quite a separate matter to make sure that, once that is awarded, the criteria that went into that, securing that award, is adhered to. In terms of whether it be at lease award, consent or at CFD— Crown Estate. If it is taking into account socioeconomic benefit and a company is saying that we are going to create ex-socio-economic benefit, then, therefore, they get our lease, there has to be a means of making sure that the basis upon which that lease was awarded, the promises and commitments that were made by, in this instance, the Crown Estate, can be implemented and there are actually sanctions if they are breached. That's the point of making. That's fair, surely. Absolutely. I guess that it's just in terms of how binding those statements are, but what I was going to say in terms of the journey of a project through lease award, to then consent, to then securing a CFD, it's probably at the CFD point where there is a slightly greater degree of certainty that a project will indeed proceed with the current project partners because, for the projects that we are aware of, at the times of awarding lease to now progressing with their projects, the make-up of those projects, of those developers, have changed quite considerably. It's perhaps towards the tail end, if you like, of that process, that the more enforcement would be applicable to come in because there's more certainty around the nature of the contracting. That would be my view. I think that we'll come to question from Jackie Baillie now. It follows on, convener, because I want to stick with contracts for difference, but, in particular, the submission of supply chain plans. It looks to me, from the reading from our briefing, that they are submitted very much at pre-registration stage, and I'm wondering what work is done with them, what scrutiny is done with them, at pre-signing allocation and also at the start date of project delivery. Are there any conditions or is it just at that very early stage that there is a supply chain plan put in place? Who would like to answer that? Anybody now? Andrew, you were clear earlier on about that. This is absolutely not my forte at all. I'm afraid I can't advise with any authority. Given what John Mason said about the lack of detail in the one example that we have, and most of it is redacted, it could be a very high-level, very general document that's right at the beginning of the process and no further attention is paid to it. Scottish Enterprise or Highlands and Islands, do you know? I think that, in terms of Highlands and Islands Enterprise experience, particularly with respect to Murray East, going back to 2009, we engaged with the developer and very much with a view to try and shape that supply chain plan. More with a view and, similarly, colleagues in SEU were working with the other developers in Scottish Waters. The view was to try and ensure that they are very much aware of the Scottish capability and to try and encourage a broader look at the supply chain as opposed to using just established or preferred suppliers. That is to help to shape the plan. What we haven't been able to do is to enforce that in terms of how that's rolled out. Clearly, that's where it's market forces have come into being. It's around what commercial decisions have had to be made. I don't want to mischaracterise this, but you've helped shape how that would look, but then the companies have gone on and done something completely different. They've had to follow the normal contracting procedures. I want to bring Andrew back in in a second. You specifically said that the Government takes a very dim view of this. I mean, I forget your exact phraseology, but they would crack down on it. Have they done so at all yet in any project? Again, not my 40, so I'm not aware of what might not have happened privately with individual companies in the Government. I think that there's a few things here. I'm not in authority, as I was saying, on the position of the local content plans that need to go into the bidding process in order for a company to win a contract for difference. I think that there's a few other things to take into account, which is not that long ago, five, seven years ago or so on, offshore wind prices were out of the market altogether. There was a huge question mark about, is this a sector worth supporting whatsoever? The industry has been working extremely hard to prove that it can get costs down to competitive levels with other technology types as we seek to green our economy and green the generation supplying the UK, so that's a success for the UK. We should not ignore that. Nevertheless, I think that what we're now seeing—we mentioned the sector deal and it's worth keeping mentioned in the sector deal—is the new line in the sand about saying, right, now we've seemed to have gotten into a competitive position. There's still a few things to deliver, so we need to be delivering at these very low prices. That is a challenge for the supply chain, ultimately. How can we get to those low prices? What we've got from what I can see—I'm just giving you a circumstantial evidence rather than a—here's a specific project—but there's a far stronger willingness across the development community to recognise the role in taking the industry forward is much more than what they had to do in these highly competitive stages, which is to design a project, usually in a darkened room, in any emergency, to say, right, hands up who wants to build this project with me, and it just goes out to tender, and the cheapest one wins. Their first port of call would be UK supply chain. If they didn't have the capacity or the capability, they would just go, well, I tried. That was the end of the engagement, really. I think that that's what's beginning to change is that people are recognising, for the longevity of the sector, for the longevity of hitting low prices again and again and again. We've got to look at things differently. I know it's not saying we're ready right now, and I know it's not saying we've fixed all that in the past, but it is a way of saying, as we look into the future and ways forward, we need to be doing things differently and more robustly to support supply chain in the UK. I'm clear about that, but the question is how we get there, and we're clearly not there now, despite the UK having a wind industrial strategy from 2013. I'm curious to know from the trade unions as well, when they are calling for an industrial strategy, are you talking about a revamp of the UK one? Much of what the UK says, BiFab as a leader in jacket foundation supply, roles for the Scottish Government, SE, high supply chain plans, all of that reads very well. Are we talking about the Scottish industrial strategy that would feed into that? Clarity on that point would also be… It is both, but I was going to say that in terms of lessons learned, look how quickly support for onshore wind eroded with the UK Government, because they weren't seeing the jobs that they could take on a political level to say, this is worth the justification as to why I want to grow this industry. So the offshore wind is heeding that very loudly and doing its best to put actions into place, but it's going to take some time for the full effect, I think, to come through. Sean Power. There's been a lot spoken about competitiveness, and just let me make it clear that if there's any impression that we moved in here and bought BiFab and expect whether we're competitive or not to win contracts, then let's dispel that. We have a responsibility to be competitive. That's what we do around the world. We win contracts because we're competitive and we are successful. What we're suggesting here is that the playing field is not level. If the playing field is level, it's up to us then to be competitive. As Nick pointed out, there are a number of things happening at BiFab, but we understand serial manufacturing. We do it in other places in the world. We have experts at BiFab right now in project management and lean manufacturing and so on who are leading that training. We understand that we need to be competitive. We just need a level playing field. That's our point. Further to that, on the local benefits side, we work in various countries all over the world. One of our companies is a technology company and it provides technology to large infrastructure projects most specifically in oil and gas. We work in Nigeria. We have to have a local partner because there are local benefits agreements in place. In the Middle East, where we are competing against Llanpral, we need to have a local partner to work on projects in the UAE or Saudi Arabia to be able to deliver that world beating technology to those countries. There is no framework around those local benefits here in the UK for a resource that is really for the benefit of the people here. We are temporarily in the chair. We have not a huge amount of time left, so if we can keep both the questions and the answers fairly succinct. I think that Mr Sharp will come in. First of all, I want to clarify—not that I can, but I will clarify—the Bill Elkington's point on the 4 per cent Scottish content for the Beatrice project. I will ask SSE to clarify that for the committee, because, as far as I understand that, that is simply not true. I just wanted to talk a little bit about the question that Jackie Baillie mentioned, which is engagement with supply chain generally. What we have found while researching this session is that there is a lot of support and a lot of good feeling for BiFab specifically and Scottish content generally in the industry in Scotland. Companies have gone above and beyond to put work their way and have in some cases invested—SSE invested £11 million in 2010 for a 15 per cent stake. Cost is not the only thing at play here. Cost is not the be all and end all. I take DF Barns's point that, yes, they are competitive. There are other things at play here. Let's not underestimate the damage that was done by the events of 2017 and the dint and confidence that that has created in industry. There is a job of work to go through to rebuild that confidence. Industry is watching closely what is happening in Methl, Burn Island and Arnish, because they want to invest in BiFab in Scotland, so just give us the evidence. I was conscious that nobody really answered it. Is anybody sitting around the table aware of any company that has had their contract either terminated or they have been fined because they have not fulfilled their supply chain plans? Nick Sharpe represents most of them. I have to join Andrew, I am afraid. I am not an expert on that part of the contracting. Nobody is. If anyone wants to reflect on it or discuss it with colleagues and come back to us, you can write back to the committee. That is true of anything else that has come up today that you want to send to us, but all means to do that. I thank Gordon MacDonald for that next point. I have got two very quick questions that remind me of the time constraint that we have. We have heard a lot this morning about the potential of state subsidy in other countries and the lack of local content. What role do EU regulations play in contracting for those developments and are there any changes required to make it a more level playing field? Mr Sharpe, my understanding is that the key UK regulation that has led to the development of our industry in the UK are climate change targets. Those are the regulations that have driven the direction of travel. We want to tackle climate change. In Scotland, we have an incredible renewable energy resource with a windiest country in Europe. Our industry is using that resource to bring economic benefit to Scotland. Beyond that, if you are talking about state aid, for instance, that is a matter for government. Do you want to try any more, Gordon? Right. I have a second question and I have a better response. UK Government strategy appears to be to let the market decide. Can the UK Government regulate and dictate the proportion of work carried out in the UK? If so, why have they not chosen to do so? To that would be why not. I think that the point that has not been made yet is that we are talking about contracts for difference and getting into the wider debate about renewable subsidies. We have pain for this. It comes back to the question again. Where is our share? We are told that those are the jobs of the future. Not enough of those jobs are coming to Scotland, not enough of them are coming to the UK. I would like to remind the committee that the industry has succeeded massively in reducing costs and making a comparative industry. For a customer perspective, that is a great thing. From an industry growth perspective, there is no question that the industry is looking much harder at how we can grow indigenous UK content in ways that we simply have not done before. I can only reiterate to you what I have heard directly from ministers speaking to us at the industry council, which is the expect to see us succeed in that front. The mechanisms, I think, we would need—we are a bit stony to be explored as to what UK government is thinking on that front. Mr Elkinson. Similar to Peter's comment, the people of the UK and Scotland subsidise these projects. Most places in the world that we work, where the resource is owned by the country, when there is a major capital expenditure to utilise and harvest that resource, there is, typically, some form of local benefits agreement. I would say why not as well. Mr Raffer, you want to come in on that as well? Can I just pick up a point that Nick had referred to earlier about the damage that was done in 2017 to BiFab? BiFab is under completely new management. It is not the old management, it is clearly DF Barnes and JD Driver. Is that message not getting through to the sector itself that there is a change, a big fundamental change? I think that that was a question maybe more than an answer, was it? It was, right, right? I am happy to take a comment on that. Were you going to say something, Mr Sharpe, at that point? I just want to reiterate, really, what renewable energy is doing, what our industry is doing. The average fossil fuel power station in the UK today is more than 30 years old, and we have to replace the ageing generation infrastructure doing that with renewable energy is the only way that makes sense in terms of meeting our climate change commitments. At the moment, the turnover from our industry in Scotland in 2017 was £5.5 billion. The industry employes 17,700 people. The benefits are not just economic, they are environmental benefits too, and we all benefit from that. There is a lot more at play here than just economic benefits. There are environmental benefits, and there are wider social benefits as well. It is worth taking that point, thank you. I think that Dean Lockhart has the final couple of questions. Thank you, convener. I wanted to come back to the wider question of how we can realise the future potential in the renewable sector generally, and what lessons we can learn from recent history. Bifab is just one example of a challenge that the sector has experienced. A couple of years ago, we saw the failure of Aquamarine, and we saw the failure of Pilemmas at significant costs to the tax pair. What lessons can we take from the previous problems and, I guess, for the enterprise agencies? What are you doing differently? What is your strategic approach to avoid the mistakes that we have seen in the past? Nick Sharper, I would direct that question to you as well. I think that a point that was made by GMB earlier is quite right. In terms of offshore wind, we are late to the party, but we are by no means too late. That is a really important thing to bear in mind. The sector deal, as we have heard, sets out a path to double offshore wind capacity by 2030 to more than triple the number of jobs in the industry. Contrary to what we heard earlier, the majority of the value in an offshore wind project is in the operations and maintenance of that project. Running a large wind turbine out at sea is very intensive in terms of manhours and on equipment. Maintaining and operating wind turbines is a far greater chunk of the value of a project than building wind turbines. That is something that Scotland and the UK are already doing very well at capturing those benefits. In fact, the UK content of offshore wind is up above 45 per cent at the moment. Where we really need to make inroads, if we are to reach that 60 per cent target that is contained in the sector deal, is in manufacturing. We will not reach that target unless we innovate and we grow our manufacturing base. In offshore wind, the target is there. It is for government and industry. They sign the deal. It is for them to deliver that, and we are confident that we can. If you want to talk renewables more widely, I think we have done very well on decarbonising our electricity supply in Scotland. We have got two nukes running Peterhead on and off by and large. That is it, apart from renewable energy in Scotland. We have done very well. We are up above 70 per cent share of consumption in Scotland at the moment. What we have not tackled to date is heat, which accounts for 55 per cent of the energy that we use and transport, which is probably another fifth. When we start looking at heat, that is a far more domestically focused area than we have seen here. I think that that has really been demonstrated today that the kind of breadth, the global reach of offshore wind, is really significant. The heat challenge is something that we are really just beginning to address. The Scottish Government has a target that 50 per cent of all our energy will come from renewables by 2030. That is electricity, heat and transport. Again, the target is there. The industry is ready to deliver. Let us do that. On the failure of companies, Ireland and Wolff also failed in Ireland. In the overall UK, you are seeing fabricator after fabricator fail. The reasons for that is, again, back to competing against companies that can lose money on every bid. We will continue to see that. If we do not put people back to work in Fife soon, we will start losing that capability to be able to build that in the future. The only opportunity will be to go offshore. I was going to ask the enterprise agencies in terms of lessons that we can learn from past failures. What is the new approach that you are taking to avoid the mistakes of the past? I reiterate that, in terms of renewable energy, it remains a priority for our Highlands and Islands Enterprise, not least because of the employment potential but also because of the reach of the benefits throughout our rural areas, including our islands, as well as large-scale generation and trying to maximise the economic benefits from that. We also have a strong focus on test and demonstration. If I could just highlight, you mentioned the failure of Palamas and Aquamarine. We have, as a subsidiary, Wave Energy Scotland in response to that failure, trying to learn the lessons from how we supported wave technology. Now, a different approach. A few that were established at the end of 2014, and now a few years on, we are really making progress in terms of convergence and potentially viable technology there. Again, that is a focus. As well as large-scale generation, we are very aware of a move to more decentralised energy provision in matching supply and demand. We are working hard with technology providers, integrators and our communities in terms of how they play into that space. In terms of offshore wind, I want to highlight that there is a greater understanding of the maturity of the sector. We, as an agency working with industry and government and intermediaries, have learned a lot over the past decade or more in terms of what we are trying to achieve and how we perhaps have not got to where we want to be. I think that there was reference earlier to the oil and gas sector and how we have success there, but looking at the maturity of that sector, it is arguably relatively recently that that sector has recognised the importance of its supply chain, that the operators, which is akin to the developers in offshore wind, recognise the importance of their supply chain in terms of risk mitigation. That is really what we want to encourage and work with developers and tier ones around developing that UK supply chain to mitigate risks as they develop the offshore wind sector. Our developer engagement is already really strong and we will continue to work hard with developers. I guess that we are in a position now to ask a lot more intelligent questions. That has been totally honest around how things will play out, around the contracting and also to work with the tier ones and tier twos more constructively as well. I think that the step change for Hanson Islands Enterprise going forward in offshore wind is really around the cluster development approach and it is really recognising that we do believe that there is an appetite and a will to be more collaborative in the sector now. We are witnessing that with the players around the table and indeed today in meeting there is a co-ordination group around the clusters that is happening today. That is where we are hoping that that cluster approach will develop better projects, better products and improve overall productivity and grow the members of that group and the supply chain that we will be engaging with. I think that Andy McDonnell wanted to come in on that. I am very conscious of your time, so I will ditto to a very large extent because we are in lockstep as far as the support and learning that we have taken in terms of the wider industry. The other element that I think is a very important role for us as economic development agencies and it mirrors the neck with some of the comment that Andrew Jimison provided earlier on about the sector deal where we have also fed into that and helped inform it. Taking lessons from the oil and gas sector is the emergence of new technologies and the importance of taking some of those technologies, supporting the industry base around collaborative research, so we support the energy technology partnership, organisations like the oil and gas technology centre, the power networks demonstrations and all those bodies, the national manufacturing institute for Scotland, which will be established, which are about engaging companies in getting research and collaboration that can be commercialised and then our function is also to help to get that into commercial play. A large part of what was indicated by Martin Whitmarsh's report, which helped inform some of the work in the sector deal, was that in the space for the UK and for Scotland, one of our big opportunities is in new and innovative technologies and we have a lot of offshore expertise from the oil and gas sector and we are working very hard to try and transfer as much as possible of that appropriately into the offshore renewable sector as well. Jamie Halcro Johnston, do you have a brief follow-up? A very brief follow-up and more of a statement really. We have already talked about the issue of state aid and the confusion over that. There is very much of feeling in some areas in the highlands and islands that we missed out on the opportunities of onshore wind. We now have this huge potential for offshore wind coming up. Are we ever going to be able to have a competitive supply chain if we do not get this issue of state aid or potential state aid resolved? Is there a role now for the industry or for government to finally or for somehow to get some sort of agreement or approach on identifying whether there is a level playing field or what can be done to compete against that? Perhaps Peter Walsh wants to make a statement in response to that statement. I think that it will kind of add on to that. What we said ahead of today was that this should be a starting point for what we do moving forward. I think that there has to be something tangible that comes out of the summit next month. To focus people's minds on it, I think that there has to be, as part of a broader industrial strategy that was spoken on a greater point, is that we need to understand what we need in terms of investment, how we can support the infrastructure and also how we can look at rules in the round procurement and planning. The situation is just now, however, that the yards in Fife are empty. They have been maintained by our skeleton staff. Our priority is to make sure that we can compete for those high-value manufacturing posts that are going abroad just now, which will be done in the gulf. It will be done in the Persian Gulf and it will also be done in Northern Europe. It will not be done in Scotland. We need to move with pace and purpose as a Parliament, as a Government, working with unions and industry to make sure that we are creating the conditions that are going to allow us to compete and to get jobs and value back into those yards and prosperity, back into those communities. I have finished my questioning. Very good. If there are no further questions from committee members, then we will conclude this session with thanks to everyone who has come to give evidence today. I will now suspend the meeting. We will move into private session.