Two offers made to buy the Green Investment Bank (GIB) were both below the government’s minimum acceptable valuation, according to the National Audit Office (NAO). Macquarie, the winning bidder, raised its offer during the process, but at the same time it benefitted from lower uncertainty and risk, as construction risk profiles changed and power prices increased. Macquarie’s commitment to GIB’s green objectives and Green Principles are not legally binding and apply for only three years.
In a new report on the sale NAO said the sale processes was very slow – taking twice the expected nine months. UK Government Investments (UKGI), which ran the sale process, had to develop a fall-back option after initial plans to sell at least 75% of the shares to a single bidding entity looked set to fail, because there was less investor interest than expected. Eventually UKGI sold 100% of the Department’s shareholding in GIB and the majority of its assets to Macquarie for a net cash purchase price of £1,621 million – within the government’s target range, albeit at the lower end.
A phased sale might have raised £62 million more than the sale to Macquarie but it meant the government would carry risks over construction and an extension to State Aid, among others.
The slow sale process and a restructuring caused operational problems at the bank and saw key staff leave, NAO noted.
However, the NAO said that UKGI “successfully sold a novel and complicated asset and obtained a premium to government’s investment,” although it was handling a complex sale in an underdeveloped market, and one with 76 individual assets each requiring substantial bidder due diligence. NAO also noted that this was achieved while the Brexit referendum caused uncertainty in capital markets.
The NAO said that in setting up the GIB the Department had developed a clear rationale for its intervention, building on cross-party political support for a green investment bank.
But in operation it lacked clear criteria or evidence to judge whether GIB was achieving its intended green impact. “The Department wanted GIB to be an “enduring institution”, but did not make clear what this would mean in practice when establishing the bank,” NAO said.
An independent evaluation in August 2015 found that the bank was addressing market failures in offshore wind and waste and bioenergy. But it had less impact on other areas such as non-domestic energy efficiency and onshore renewables.