Burned

by Sam McBride

  Bell and Kerr each declined to comment on the incident. The department said it had no record of Bell making any declarations of interest, declarations of hospitality or any other declarations during his time as minister.

  When asked why as a hard-nosed company known for its efficiency Moy Park spent money on giving free turkeys to DUP ministers taking decisions which had major implications for Moy Park’s profitability, and to set out what other gifts Moy Park offered to DUP politicians or civil servants, the company declined to comment. Foster and Crawford similarly declined to comment on what gifts of hospitality they had accepted from Moy Park.

  When asked a series of questions about RHI during the writing of this book, a PR company acting for Moy Park said that as the inquiry was still ongoing it was ‘precluded from providing any additional information’. However, senior counsel to the inquiry David Scoffield made clear on day 58 of the inquiry’s hearings that once a witness had completed their oral evidence and been released from their oath ‘there’s nothing to stop [them] from talking about [their] evidence in the inquiry’.

  It is, of course, common for many businesses to send gifts at Christmas, and only the most venal of ministers would be influenced by a few mouthfuls of free turkey when they came to decide on the expenditure of hundreds of millions of pounds. But if there was any benefit whatsoever to Moy Park from such gifts, it was a good investment. Buried in a JBS market update in the fourth quarter of 2016 – a full year after most Moy Park farmers had entered RHI – was the revelation that Moy Park had become significantly more profitable. Although its overall revenue had fallen slightly, the profit (before tax or interest payments) which it was making on that revenue had risen from 7.9% at the end of 2015 to 9.8% a year later. There was no mention of RHI – just an oblique reference to ‘an improvement in operational efficiencies and an enhanced focus on cost control’.

  There are at least four ways in which Moy Park benefited from RHI:

  1.The company had a modest benefit from two of its own boilers, rushed into service after it was tipped off by Crawford about closure.

  2.The cost of its farmers’ heating was heavily subsidised by taxpayers, allowing it to cut the percentage of heating for which it had to pay.

  3.RHI paid for a more expensive ‘dry heat’ system which reduced ammonia and reduced the hock burn on the chickens’ legs from where they were crowded together in sheds deep in their own wet faeces. Aside from considerations for the birds, that meant that they were in better condition and more of each carcass could be sold.

  4.RHI was a cost-free means of improving Moy Park’s image, both by improving bird welfare and enhancing the environmental credentials of a company which in many of its operations damaged the environment. Those benefits would then be marketed by the company for financial gain, helping it to charge a premium as a green company, such as in its deal with environmentally conscious celebrity chef Jamie Oliver.

  In May 2015, just as DETI was realising the RHI problem, the company sought to raise £100 million to help finance its expansion. A 276-page document compiled for potential investors provides unique insight into its operations. In Moy Park’s own words, its business model ‘gives us significant control’ – it supplies farmers with everything from the chicks themselves to their feed and the exact conditions for their housing. It said: ‘We intend to continue to improve our operational and agricultural efficiency by implementing measures such as improvements to the feed conversion ratio (the measure of an animal’s efficiency in converting feed mass into increased body mass) … [and] controlling costs of production.’

  RHI improved the feed conversion ratio – it took less food to produce each kilogram of chicken. Is it possible that a company managing its budgets so meticulously could not have realised that RHI was a huge benefit? If, as the company claims, it did not realise that it was benefiting, why did its senior management spend so much effort to rush through boiler applications before RHI shut?

  The company was also alive to the potential for it being scrutinised by anti-monopoly regulators because ‘the production of fresh chicken in the UK is a relatively concentrated industry in which we estimate ourselves to be the second largest producer, with 26% of UK production’. It said that ‘any attempt on our part to expand our production of fresh poultry, particularly through the acquisition of other fresh poultry producers in the UK, may attract the scrutiny of UK and European competition and antitrust regulators’. Here the company was showing awareness of not just state aid law, but of the potential implications of its dominant market position. The company said that ‘increasing the number of farms providing poultry to us is critical to increasing production’ and that

  if we are unable to increase the number of farms supplying us with poultry at a high enough rate, we may not be able to increase our production at the same rate as competitors. This may cause us to lose market share and may have a material adverse effect on our business, our results of operations and our financial condition.

  Even if RHI had no other benefit to Moy Park, it was critical to mitigating this self-identified threat to the company. RHI persuaded farmers to expand where otherwise they would have been cautious. Putting up another huge poultry shed was suddenly more attractive to farmers because of the RHI profit on offer. Sean McNaughton was one such poultry farmer. He admitted that ‘the tariffs promised by RHI were a very important factor in deciding to proceed with both the new biomass boiler and the poultry shed, as in the absence of the tariff the financial calculations would almost certainly have led to us not going down this path’. Another farmer who was deciding between putting up another poultry house or installing biomass in his existing houses decided on the latter because he calculated that he would make more money from biomass – both in direct RHI payments and indirect financial benefits from healthier birds – than by expanding his business.

  ***********

  Poultry sheds require huge quantities of heat. Day-old chicks are crammed into vast sheds where they will die if they do not receive the warmth which in nature they would get in the nest. From the outset, Stormont’s scheme was designed on paper to be less generous than that in GB. The rationale was that differing fuel prices meant that people in Northern Ireland required less subsidy to shift to green energy. For that reason, the tariffs were significantly lower in Northern Ireland. Had it not been for the removal of cost controls, it would therefore have been more attractive for Moy Park to expand in GB with a more generous payment scheme. Stormont was desperate to secure the expansion on its side of the Irish Sea and, as demonstrated by the Challenger tank analogy, discussed the company as a strategic asset.

  Cathal Ellis, the green energy expert at the Department of Agriculture, met Moy Park in September 2014. Moy Park told Ellis that the cost of a biomass hot water system was £30,000 per house and they were expecting an RHI income of £10,000 a year – meaning that in crude terms the boiler would be paid off in three years, with 17 more years of payments to come. Ellis repeatedly used poultry and mushroom-growing examples in the slides of his presentations to farmers, explaining to them how lucrative RHI could be.

  There is considerable circumstantial evidence that RHI was used to provide a backdoor subsidy to Moy Park. It is also clear that from at least 2014 Stormont officials knew of a looming rush into RHI from Moy Park’s farmers. By 2015 at the latest, Crawford was aware that RHI was wildly lucrative for poultry farmers, yet he was working in the shadows to keep payments high for Moy Park’s farmers. In that period DETI officials were giving crucial RHI information to Moy Park before even giving it to their minister. Crawford then tipped off Moy Park in January 2016 that RHI was to be shut, giving the company weeks of a head start on others and allowing it to rush through yet more boilers. But all of that came after RHI was established. Could it have been the case that the scheme had been deliberately set up without cost controls to facilitate one company?

  At first glance, the fact that Moy Park did not immediately pile
into the scheme when it was opened suggests that it took some time to realise how beneficial it was, undermining that theory. However, that may not be the case. Even though the company wanted to build new poultry houses, it could only do so with planning permission and environmental consents which were tied to its inability to adequately dispose of its chicken dung mountain.

  One senior civil servant said that until the middle of 2014 Moy Park was not in a position to expand. Therefore, the delay in entering the scheme may not have been because Moy Park was ignorant of RHI’s benefits from an early stage.

  But whatever the genesis of the scheme, it soon became clear to most of those involved that it was strategically significant to the poultry industry. By May 2015, as RHI was running way beyond budget, DETI’s Stuart Wightman told colleagues that closing RHI ‘should be a very last resort as it would be very damaging for the local renewable heating and poultry industry … the performance of the NI RHI is a success story’. That comment is one of many which make it difficult for Stormont to argue that it was unaware of what was really going on. Here Wightman was presenting RHI not as a scheme which helped the poultry industry cut its carbon emissions – that would not in itself have been ‘very damaging’. Rather, it was presented as crucial to the industry – and therefore Moy Park. But one very senior civil servant’s words – spoken on the understanding that they would never be made public – undermine the benign view that RHI was an accident which Moy Park belatedly began to exploit.

  Prior to RHI becoming the scandal which toppled Stormont, David Thomson, who was second in command in DETI until he retired in June 2014, spoke candidly about the significance of poultry to RHI. In an interview with PwC, he said: ‘It was a very important scheme because we then tied it into all this poultry stuff and it became a very critical element of that …’ Thomson knew what he was talking about because he was DETI’s point man on the attempts to help Moy Park solve its poultry litter problem. Thomson set out how the situation had arisen because Moy Park had persuaded Stormont that it could massively expand in Northern Ireland – if it got sufficient government support. Drumming on the desk with his fingers, he said:

  This all goes back to … one of the big supermarket chains said that they were going to stop sourcing poultry from outside the UK and that from a certain date … the trouble is we didn’t have the capacity, alright? Moy Park came to Invest NI and the department and said this is a wonderful opportunity for us. The minister got very excited about it, quite rightly, because [of] great export opportunities but also great employment opportunities …

  The veteran civil servant went on:

  There were two or three problems with it. One was [that] banks weren’t lending so again one of the things we spent a lot of time doing with [the Department of Finance] was trying to get a lending scheme because banks said there is no value in a chicken house. The value is actually on the income generated, not in the ground. The second was poultry litter where we were in default [of environmental regulations] … and the third was costs and hey the RHI was a wonderful way to help that so this was part of – I don’t think it was written down as a formal poultry strategy but everybody in the department knew along with Invest NI [sic] gave Moy Park a very substantial grant assistance from my knowledge so it was all part which was why we were encouraging all this and to see as what you see in the press now and you can see the maps of you know of blobs of where this money went [an allusion to RHI claims clustered around Moy Park’s abattoirs].

  Moy Park employed more than 5,000 people in Northern Ireland, and its expansion would increase that to 6,000. That was Stormont’s justification for the huge direct subsidies which it got from taxpayers. But government subsidy to private companies is constrained by EU state aid laws which aim to provide a fair playing field for companies, something which is distorted if a government is propping up or unfairly supporting chosen firms. Stormont was acutely aware of the state aid rules. It wanted to do everything it could to help Moy Park without crossing the line into illegal state aid. But even if many in Stormont were well-intentioned, no one observing Moy Park’s entwined relationship with government could deny that it had an unfair advantage over its few remaining rivals. Insofar as officials or politicians ever questioned the preferential relationship, they justified it on pragmatic grounds – if they didn’t keep the company happy, it could move jobs elsewhere. But how was another poultry firm to compete in a situation where Moy Park was not only financially benefiting from taxpayers subsidising its heating bills, but where the government gave it the inside track ahead of its competitors?

  From Stormont’s perspective, Moy Park was too big to fail – or too big to be lost to Northern Ireland. And it knew it. In a February 2016 meeting with Andrew McCormick, the company lobbied to see an RHI-type scheme kept open. DETI’s note of the meeting said that Moy Park ‘feared competitive disadvantage with GB … Moy Park believed in NI but, ultimately, had to go wherever made best sense for the company’. Although that was on one level a statement of basic capitalist principles, it also reads as a quasi-threat: if you don’t keep us happy, we might move jobs. But in tolerating that argument, Stormont adopted a tunnel vision which obscured the perverse nature of what government was prepared to do to placate the firm. When asked about the Moy Park relationship, one senior DUP source did not defend it as such, but said bluntly: ‘Do you think this wasn’t happening with other big companies?’ In a globalised capitalist world, it is perhaps inevitable that governments would be tempted to bend or break rules to secure jobs in their region. Yet, aside from the question of fairness, for capitalism to function efficiently it requires free markets in which the strongest survive and the weakest fail – not the crony capitalism whereby a company’s size or political connections buys it preferential treatment.

  It was not just Moy Park which was, at best, treading a fine line with EU state aid law. In January 2017, Elaine Shaw, who was speaking on behalf of mushroom growers, told MLAs that 90% of mushroom farmers in Northern Ireland had installed biomass RHI boilers, and went on to say: ‘This investment reduced our growing costs by 4%, which was a substantial margin. That has been critical to allow our growers to remain competitive and compete with the Polish mushrooms that are being imported.’ Here was prima facie evidence that RHI was distorting the pan-European mushroom market. In defending RHI claimants’ court challenge to the subsidy cut, the Department for the Economy’s QC cited those comments as demonstrating ‘the potential for market distortion through state aid’ and that the scheme was never envisaged as a way to ‘allow producers to drop their prices’. He added: ‘There are other sectors – poultry, other industrial sectors which may be enjoying a similar advantage’. Having tolerated that for years, Stormont was now about to pull the rug from under those who had entered the scheme it had promoted to them.

  CHAPTER 23

  EVEN THE WINNERS LOSE

  Barney McGuckian was always looking for ways to improve his animal feed business. Every year the north Antrim man went on a study trip, mostly to continental Europe, in an attempt to see how the feed mill in Cloughmills, which he ran with his brother Liam could become more competitive.

  On the 2014 trip, a powerful DUP figure who was completely unknown to him was present. It was Andrew Crawford. McGuckian had recently heard about RHI and was exploring the possibility of applying to the scheme for a massive heat plant. Crawford, whose brother-in-law, Wallace Gregg, was from Cloughmills, got chatting to the businessman and, in McGuckian’s words, ‘made it a lot easier for us to get in the door’ to the department. Crawford put him in touch with DETI’s Stuart Wightman who met him to discuss the possibility of the McGuckians building a combined heat and power (CHP) plant – a mini-power station, generating electricity, but also utilising the heat for the manufacture of wood pellets. McGuckian never met Crawford again. The next time he saw him was on television where he was facing allegations about his role in the RHI scandal.

  At the point he met Crawford, CHP
plants were ineligible for RHI. But that was to change in November 2015. At the point where RHI was at last being reined in, it was also expanded. It was an absurd decision, given the scale of the overspend. CHP plants are huge and involve enormous subsidy claims. But, perhaps based on the the continued belief that London at least might be paying, DETI pressed ahead with expansion at the point where the entire scheme ought to have been shut. However, a cruel fate was to befall the McGuckians and their business partner Colin Newell. Having consulted DETI at every stage and taken its advice about the plant’s design, they pressed ahead with their plans. The installation, which would never have been on the ‘cash for ash’ tariffs and would have been paid at a lower rate than similar plants in England, was actively encouraged by civil servants and promoted in government literature, which led them to invest half a million pounds in getting it to the verge of construction.

  In September 2016, three months before the Spotlight exposé, DUP Economy Minister Simon Hamilton wrote to them to say that ‘subject to satisfying all Ofgem’s eligibility criteria’ they would be ‘entitled to the CHP tariff’, and went on to refer to ‘the current RHI CHP tariff of 3.5 pence per kwh’. In December, after the scandal erupted, having believed that they had been given preliminary accreditation, they were told in writing by a senior departmental official that they were ‘the operator of an accredited installation under the [RHI] scheme’. But the following month, after Stormont retrospectively capped and tiered all tariffs, a huge problem was discovered. When officials went to the European Commission to ask for state aid approval, they were told that they had never applied for approval for the 2015 changes – of which CHP had been part.

  It was an extraordinarily basic failure by DETI, which meant that the 2015 RHI changes had never been lawful so CHP plants were ineligible. But when the error was discovered in 2017, civil servants sought to wash their hands of the implications of their disastrous mistake.