Stephen Boyle, speaking to the Scottish Parliament’s public audit committee, also warned the deal could “unravel potentially quite quickly” due to the “really volatile set of circumstances”.
The 2016 deal between businessman Sanjeev Gupta and the Scottish Government involved ministers guaranteeing the power purchase obligations of the smelter from the nearby hydroplant.
Ministers receive an annual fee for the guarantee, which is worth between £14 million and £32m a year over the life of the contract. The overall value was £568m when agreed six years ago.
Scrutiny of the deal increased following the collapse of Greensill Capital, the main funder of Mr Gupta’s conglomerate the GFG Alliance, in 2021, forcing the company to refinance their operations globally. The company is also under investigation by the Serious Fraud Office and saw the auditors of its Scottish entities, including the smelter, resign last year, leaving the latest set of accounts unaudited.
Mr Boyle said these factors were “concerning” and highlighted concerns around transparency and the complexity of the deal. He said: “There is both exposure to the Scottish Government in annual terms and totality that are set in the accounts. At the initial point of the deal, they took steps to safeguard their risk, so there are guarantees and there are securities in place.
"However, it is unclear yet what all of these factors will mean about ultimately whether that complexity of transaction will have to be unravelled. It’s something we are keeping a close eye on, but you can see from the detail that is set out in the report and also you describe, it’s a really volatile set of circumstances.
"As we have seen in other fast moving cases, this can all unravel potentially quite quickly.”
Pressed on the fact the Government was basing its assessment of the smelter’s operations on unaudited accounts, Mr Boyle said there should be a better degree of transparency around companies which receive public investment.
He said: “I think that is concerning actually and we would agree that there are, for all investments that public bodies make, we would want to see that level of transparency. So not having a set of accounts audited is a concern.
"It matters therefore that government, as one of the investment partners, satisfies itself about the integrity of its investment. We’re continuing to engage with government so it can satisfy itself about the integrity of its investment and its associated liability. It is very much part of our work during the 2022/23 audit.”
The Auditor General was giving evidence on the Government’s consolidated accounts, which included a revised provision connected to the guarantee – down £47m from last year.
The updated figure is still a significant increase from two years ago when it was valued at £37m. Last year the Government’s consolidated accounts valued the provision at £161m, but this has dropped to £114m for 2021/22.
In previous years the provision was based on “a technical assessment of a range of credit risk scenarios” and underlines the still-high risk around the deal due to the financial pressures on Mr Gupta’s GFG Alliance conglomerate, the ultimate owners of the smelter.