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The Trade and Industry Select
Committee,
Committee Office,
7, Millbank,
London,
SW1P 3JA
For the attention of the Clerk to
the Committee
16th
March 2006
Dear Sir or Madam,
Submissions to the Inquiry into Government and MG Rover ("the Inquiry")
We refer to your press notice PN 20 of
Session 2005-06 relating to the Inquiry. We set out below a submission to the
Inquiry on behalf of the Board of Phoenix Venture Holdings Limited
("PVHL"). We should point out that, whilst PVHL wishes to support the
Inquiry in every way possible, it has inevitably been forced to limit its input
below to avoid prejudicing the outcome of the current DTI investigation into
the affairs of MG Rover Group Limited ("MGRG"), a point that was also mentioned
in your press notice.
The submission takes the form of
suggested questions and lines of inquiry focusing on the DTI's process and
tactics not least,
although not exclusively, the DTI's reliance on input from Rothschilds. PVHL
believes that, the right individuals being asked the
right questions will give rise to a very different picture of MGRG's collapse
from that described by the DTI.
On a number of the issues raised below,
we have sought to obtain information from the DTI, the Treasury, and
elsewhere. So far, and despite citing
the provisions of the Freedom of Information Act, our requests have largely
been denied.
Equally, PVHL directors do acknowledge
the contribution made by certain leading political figures within HMG who, in
addition to being fundamentally supportive, showed a clear appreciation that
the DTI's process, in itself, would have a strong bearing on the outcome of
MGRG's JV negotiations with SAIC/NAC. This was particularly important given
that Chinese business culture has enormous regard for Governmental views and
involvement, a fact that was borne out by SAIC/NAC's exceptionally enthusiastic
reception of HMG's initial involvement but which was also borne out in the
opposite direction when SAIC/NAC's views of the DTI's objectives changed as the
DTI officials engaged in depth.
The submission has six main strands:
1. The contribution of DTI contingency plans to MGRG's inability to
continue to trade on competitive commercial terms with suppliers and dealers.
2. The contribution to MGRG's collapse of potential conflict within
the DTI - between sponsors of contingency plans based upon the demise of MGRG
and those within the DTI who were pressing the possibility of providing the
bridging loan.
3. The contribution made to MGRG's collapse by the inadequate
background of DTI officials handed the burden of travelling to China in late
March 2005.
4. The contribution made to MGRG's collapse due to the negative
impact of the DTI's approach on the negotiations that were in progress in early
April 2005.
5. The contributions of a series of press indiscretions authorised by
the DTI.
6. The contrast of the DTI's approach to supporting MGRG compared
with its expansive approach to funding the Administrators and the other
consequences of MGRG's collapse.
The submission is set out in detail below (noting that "NAO" refers to the National
Audit Office and "NAO Report" to the NAO report published on 10 March 2006 into
the collapse of MGRG. SAIC refers to Shanghai Automotive. NAC refers to Nanjing
Automotive.)
1. Paragraph
2.15 of the NAO Report records that, having considered the provision of rescue
aid to MGRG, an April 2004 DTI review into the financial and commercial
viability of MGRG concluded that DTI resources would be best confined to
discreetly developing a contingency plan to mitigate the impact on the local community
of MGRG's collapse. With this in mind:
1.1 Is it not the case
that such planning necessarily required opinions regarding the viability of
MGRG being discussed with individuals at local agencies who had close ties to
MGRG suppliers and dealers?
1.2 What agencies and
affiliates would have been aware of the contingency planning?
1.3 Would it not have
been wise, or even just polite, to apprise MGRG's directors of this process.
1.4 During the
contingency planning, despite well-documented progress in negotiations with SAIC/NAC,
MGRG suffered increasing, widespread commercial pressure, and notably on its
supplier payment terms and dealer relationships. Can this paradox not be
attributed to the negative impact created by general knowledge of the
contingency plans such that they became a self-fulfilling prophecy?
1.5 Therefore, what real
steps were taken to ensure discretion in this contingency planning so that MGRG
suppliers and dealers did not become aware that the DTI and its affiliated
agencies - parties that could reasonably be believed to be key fact-holders -
were predicting collapse?
1.6 How were such
contingency plans formed whilst avoiding those suppliers and dealers feeling
they must take steps to minimise the commercial risk by limiting their exposure
to MGRG, thereby creating further challenges for the company?
1.7 How can discretion
be reconciled with the outspoken views regarding MGRG's viability expressed
across a prolonged period by certain individuals, some of whom were known to be
close to the DTI, and prominent in Midlands agencies?
2. In view of the swift
implementation of its contingency plan following MGRG's actual collapse, it is
clear that the planning was completed in good time, in detail and with
authorisation at high levels in the DTI. With this in mind:
2.1 Given that it had
previously been rejected as an option, and given that contingency plans were so
well formed by one side of the DTI, on what basis and by whom at the DTI was
the decision taken in early 2005 - before the formal request for such a loan in
late February - to review the possibility of the DTI providing a bridging loan
thereby potentially displacing the contingency plans?
2.2 In light of the
risks of such a loan causing political debate and controversy for DTI and HMG,
is there evidence within the DTI, or broader HMG, of strong reservations and
views that it was inappropriate to plan for anything other than MGRG's
collapse?
3. In
respect of the DTI sending officials to Shanghai in late March 2005:
3.1 Is there evidence in any of DTI's communications or
correspondence that explains why, after SAIC/NAC's initial enthusiasm and very
rapid arrangements made for sending a joint supportive senior delegation to
meet with the DTI in London, they then decided it would be better if the DTI
met them in Shanghai?
3.2 Given that it was communicated to PVHL that the DTI intended
to send officials capable of conducting face-to-face meetings with SAIC/NAC so
that the DTI could confirm its intention to provide the loan and who could meet
representatives of the Chinese government. Is there any evidence in the DTI
that this was not the true intention of the trip?
3.3 Can
the DTI confirm that its legal position at the time was that no bridging loan
could be provided unless such face-to-face meetings were held?
3.4 With
this in mind, how were the individuals chosen to represent the DTI?
3.5 What
were each of the individual's qualifications for such a role?
3.6 Was
this their first visit to China?
3.7 What was their prior experience of business dealings in
China?
3.8 Did any DTI official speak Mandarin or avail of the services
of independent interpreters to facilitate the conduct of meetings with SAIC/NAC
or government officials?
4. In
respect of the conduct of DTI officials in early April 2005:
4.1 Why were the DTI officials sent to
China unable to engage with the Chinese government at any time during their
trip when this was one of the stated intentions of the trip?
4.2 Precisely how many face-to-face meetings did DTI officials hold
with SAIC/NAC officials in China given that this was
one of the stated intentions of the trip? And
how does this compare with the number of meetings they held with Rothschilds?
4.3 Paragraph 2.34 of the NAO Report states that the DTI
considered relaxing its loan criteria during its officials' trip. Why is it
that during that first week in April 2005, the DTI in fact attempted to
negotiate, inter alia, through SAIC's
advisors Rothschilds that:
· SAIC accept 100% of the commercial risk of the deal and provide a
guarantee that it would repay the loan thereby effectively relieving the DTI of
taking responsibility for the decision to make the loan; whilst
· at the same time, the DTI stated, for the first time, that the loan
would be available for only two months rather than six as previously mooted?
4.4 Noting that these negotiations were routed through SAIC's
agents Rothschilds, by contrast to the number of face-to-face meetings held
between the DTI and PRINCIPALS to the deal - PVHL and SAIC/NAC - how many
meetings or conversations or telephone conversations were held between DTI
officials and Rothschilds? Who were the
Rothschilds people involved, and might the committee be minded to call those
people to give evidence, particularly Mr. Christopher Brooks, the main
Rothschilds interface?
4.5 During the process of these
negotiations, or elsewhere, did DTI officials receive any indications that
Rothschilds had portrayed themselves to SAIC as being particularly closely
connected to, and highly influential with, HMG and HMG's advisors?
4.6 Is there any evidence of any separate meetings between
Rothschilds and HMG or HMG's advisors in the run-up to the bridging loan
process and, if so, what was the nature and content of those meetings.
4.7 What is the background to the total relationship between the
DTI and Rothschilds?
4.8 Why were DTI officials unwilling to
interact with PVHL representatives in Shanghai in a balanced and open fashion?
4.9 During its meetings, or otherwise,
did Rothschilds inform DTI officials either formally or informally that it was
recommending to SAIC/NAC to allow MGRG to become insolvent and thus acquire the
company's assets more advantageously?
4.10 Paragraph 2.35 of the NAO Report states that the DTI relied on
unconfirmed reports by Rothschilds rather than face-to-face meetings with
SAIC/NAC for assurance that SAIC/NAC were not inclined to proceed. Is it true
that this was based on Rothschilds' reporting an "interpretation of its
client's attitude" rather than formal confirmation by SAIC/NAC officials?
4.11 Since there were clearly insufficient
outstanding matters in the commercial negotiations to have caused SAIC/NAC to
change its position so radically and terminally, how does the DTI reconcile its requirement for
face-to-face meetings with the Principals to progress provision of the loan
compared with its rapid acceptance of indirect and bizarrely worded comment
from SAIC's advisors to initiate loan cancellation and
a course of action that would inevitably result in the closure of the
Longbridge site and the loss of many thousands of British jobs?
4.12 Is it not true that SAIC moved from its
position prior to the DTI officials' arrival i.e. acceptance that there were a
reasonable number of surmountable commercial matters outstanding, to a position
of much greater nervousness, due to the pursuit of an agenda that aimed to
offset all of the DTI's decision-making parameters onto SAIC?
4.13 Paragraph 2.37 of the NAO Report states
how the DTI was balancing its role in the commercial negotiations against a
risk of being deemed a shadow director of MGRG. Is it not true that, at best,
in attempting this with inadequate experience in a very specialist business
territory, DTI officials actually achieved the reverse?
5. Bearing in mind the
discretion with which the DTI purports to handles its affairs:
5.1 Was there and, if
so, when was a decision taken to leak to the press the extent of the DTI's
contingency planning - preparing the local community for its mitigation of the
impact of the collapse of MGRG - and who at the DTI leaked this information and
on whose authority?
5.2 Having gained
positive publicity from suggesting it was willing to advance the bridging loan,
a series of negative press briefings were given by DTI officials over the
weekend of 2/3 April. What was the purpose of these briefings given that
they led directly to the cessation of component supplies to MGRG from
4 April? Commentators have suggested
this might have been orchestrated as a prelude to a heroic act of snatching
victory from the jaws of defeat. Did those who authorised the briefings realise
that negotiations were still taking place in Shanghai, and that the effects of
those briefings would inevitably undermine that process?
5.3 The DTI informed
PVHL on 5 April that it was circulating a draft press announcement of its
agreement to provide the bridging loan. Trade Union sources also informed PVHL
that they were to be invited to a good news briefing at Longbridge on 6 April.
Bearing in mind that at no stage had the DTI received confirmation from either
PRINCIPAL to negotiations in Shanghai that either MGRG or SAIC/NAC had pulled
out of the deal, on which official's advice was the decision taken that SoS
must announce (on 7 April) that the deal would not proceed and that MGRG
would instead collapse into "receivership" before the MGRG directors had
received an acceptance of appointment from Administrators?
5.4 Indeed, given the
circumstances set out above and the very real expressions of concern on this
matter of discretion that were levelled at the DTI by BMW during its ownership
of MGRG, is it not the case that the NAO Report failed to challenge the
contention that the DTI handles its affairs with discretion?
6. How would the DTI
characterise the difference in its approach to making available the
£110 million bridging loan that provided the strong possibility of the
long term survival of manufacturing at Longbridge versus:
6.1 the overnight
provision of £6.5 million to the administrators immediately after MGRG's
collapse - noting that:
· MGRG had received less than £5 million in funding in the
5 years between May 2000 and 7 April 2005; and
· provision of the £6.5 million loan has since been criticised in
the NAO Report as having been ill-conceived?
6.2 the certain cost to
HMG of MGRG's collapse (estimated in the NAO Report at £176 million and in
some quarters in excess of £250 million) plus the even greater additional
costs to the economy arising as a consequence of MGRG's collapse?
7. Given the widely
reported fashion in which SAIC and NAC have energetically competed to take
control of MGRG's assets and intellectual properties, and given the substantial
costs that they have incurred in this process, is there still a view amongst
DTI officials that their original appetite for a deal did not exist?
8. Which other HMG
departments and advisors were at the heart of this decision.
We hope you will find the above
submission useful in defining your lines of inquiry.
Yours
faithfully,
John
Towers
Chairman
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