Sutton’s LibDem council was last night forced to agree to an independent investigation into its failing heating company. CARL SHILTON reports
Sutton Council’s controlling Liberal Democrats, after spending six years trying to deny that there was anything even vaguely suspicious about the multi-million-pound public financing of the council-owned heat network, last night voted unanimously in favour of an independent audit into the loss-making SDEN.
SDEN, or the Sutton Decentralised Energy Network, was used as a key part of the false eco-economics behind the building of the Viridor incinerator at Beddington, which has a £1billion contract to burn the rubbish from the four councils who comprise the South London Waste Partnership, including Croydon.
Last night, “Calamity” Jayne McCoy, the LibDem council’s deputy leader and the councillor in charge of the business, gave the appearance of welcoming an independent investigation, which she said might bring to an end well-founded allegations which according to the councillor were “damaging the reputation of the council and its company, SDEN”, while causing stress to officers and questioning their integrity.
In reality, the McCoy amendments only managed to nibble around the edges of a Conservative motion calling for a full and thorough audit into the potential mismanagement of millions of pounds of public money.
The motion as amended states, “Council notes the allegations by members regarding the financial modelling for SDEN, and this model needing to achieve a 9 per cent return on investment of the capital employed, as reviewed by KPMG, for the Council to obtain the necessary funding.
“Council notes the allegation that 9 per cent was never achievable as a return from this project as in order to achieve this, the council’s solution was to add extra buildings which could not be accommodated on the New Mill Quarter site, therefore artificially increasing the demand to make the project viable. In addition, council also notes the comments that KPMG were not fully informed and not aware of all the material facts when assessing the financial model.”
With a resolve to “ensure complete transparency and accountability” – which many believe would be a first for Sutton – the amended motion was passed unanimously by the council last night.
This opens the way for the kind of proper investigation into the controversial heating scheme which has inflicted huge costs and inconvenience on thousands of residents in the New Mill Quarter development in Hackbridge, without ever once using any of the promised heat generated from the incinerator.
Thanks to a multi-million-pound sweetheart property deal carved up between Sutton Council and developers Barratts, households in New Mill Quarter have endured at least 20 hot water and heating outages in a 12-month period – something acknowledged in the body of the council motion – while being forced to pay hugely over-the-odds for the service from SDEN, without any option of changing their supplier.
At last night’s meeting, McCoy was boxed into a corner by the motion, proposed by Conservative shadow cabinet members Catherine Gray and Tim Cowley. With 33 of Sutton’s 54 council seats, the LibDems enjoy the kind of one-party state majority which usually means that opposition motions are doomed to fail.
In the past, McCoy and her colleagues have used that majority to quash all suggestions of very serious and apparently deliberate overstatements of the likely customer usage in SDEN’s business plan.
Proposing the motion, Gray noted that SDEN went more than 18 months from its launch with a council fanfare in November 2015 until its first board meeting in June 2017. Minutes of another council-owned body, Opportunity Sutton Ltd, SDEN’s parent company, show that SDEN’s business plan was being sent to consultancy firm KPMG for approval. It is unusual business practice, to say the least, that a company’s business plan is not discussed at the company’s own board, something which has raised numerous questions, including who was really managing SDEN.
The KPMG report was only obliquely mentioned in the second board meeting of SDEN – after its publication internally – when legal advice was sought about how to respond to, and deny, information requests. Even before SDEN was trading, efforts to cover-up the operations of the council-owned firm were already at full tilt.
The minutes, from July 4, 2017, read: “AC [Amanda Cherrington] enquired as to whether they could obtain some advice about on commercial exemptions and if there was a general position that could be adopted when information requests have been received.
“It was discussed amongst the directors and it was agreed that should an information request be received that requires some further advice or assistance the matter is to be referred to SLLP [South London Legal Partnership].”
Sutton Council would go on to spend £30,000 of taxpayers’money on legal fees in a fight to keep secret the KPMG report on SDEN, a battle that they ultimately lost against the Information Commissioner and the persistence of Nick Mattey, one of the independent councillors for Beddington North.
Last night, Gray said that all of the actions that she wanted investigated occurred between the formation of SDEN and its first board meeting.
The managing director of SDEN during this period was Simon Woodward. Woodward owns another company, called Woodward Energy Consulting Ltd.
Between November 2014 and October 2016, Woodward’s own company was paid at least £155,000 directly by Sutton Council.
In April 2017, with the board of SDEN still yet to have its first meeting, Woodward resigned as managing director. It has been suggested that he did so due to HMRC’s new IR35 regulations.
But as Gray noted last night, Woodward appears to have continued, to the current day, as an SDEN “shadow director”, with the title of project manager, even appearing at council meetings to address committees.
Woodward also continued to attend Opportunity Sutton board meetings after he resigned as a director. He is now paid by SDEN through sizable grants of public money from the Greater London Authority.
Inside Croydon understands that Woodward was the author of the financial model that was originally agreed by McCoy’s housing, economy and business committee in 2015. The name “Simon” is used in spreadsheets noting significant changes to the model for KPMG.
Gray’s key point was that the business plan supplied to KPMG was created and signed off during this period, when SDEN itself kept no board minutes. The council had imposed its own acceptability limits to allow SDEN to go ahead – a 9 per cent internal rate of return (IRR), and a £1.54million profit after 25 years. This was set in stone.
“This report was relied upon 100 per cent by the council and the LibDem administration to demonstrate that SDEN was a viable business, and to justify the borrowing of millions of pounds,” Gray said.
But McCoy disagreed, saying that those targets were not actually necessary for Sutton to receive loans from the Public Works Loans Board. Yet it is already public record that Sutton Council applied for the loan from the PWLB, then made a loan to SDEN when the company needed the money. SDEN did not, and has not, used the PWLB facility.
Gray singled out how planning consent had been sought and granted by the council to provide a care home as part of the New Mill Quarter development, but that this was later altered to increase the number of dwellings – and therefore for heating and hot water from SDEN to help meet the demands of its business plan – from the legally mandated 725 to 800 units.
In the past, McCoy has answered councillor questions saying that, “the financial model for SDEN has been verified independently by KPMG”.
Last night, Gray took her LibDem opposite number to task for this claim.
“This is not true,” Gray said.
“On the first page of its report to the council, KPMG states that ‘we have not verified the reliability or accuracy of any information obtained in the course of our work’. In other words, they only worked with the figures they were given. Figures that have now proved to be false and inflated.”
Gray further noted that the council was continually pushing back and watering down efforts by cross-party committees to scrutinise the operations of SDEN.
“But who did it? Who authorised it, and who knew?” Gray said of the unchecked inflated figures passed to KPMG.
“It was dishonest at best, fraudulent at worst. We must get to the bottom of this if the administration won’t tell us who invented these figures.”
When asked what form the audit inquiry would take, McCoy had the temerity to suggest KPMG should be invited back “as they have been implicated in the allegations”.
The irony that KPMG might have been an unwilling victim of spreadsheet chicanery didn’t seem to register with Councillor Calamity.
Both Crowley and Mattey pointed out that the £48,000 a year renewable heat incentive linked to the non-existent care home that formed an important part of the business plan would now not be received by SDEN.
“This wipes out nearly £1million of income over the life of the model,” said Crowley. “With the other corrections, it appears that without major expansion through new customers, SDEN is not, in fact, a going concern.”
Without the heat incentive and missing the demand of the fictional care home, Mattey said of council-owned SDEN, “This business is on for a stonking loss of about £130,000 to £140,000 a year.”
And Crowley maintains that the profitability of SDEN was always promised as being an essential part of his operation. “In a meeting in February 2016 with the then CEO of the council, the S151 officer, and the director of environmental services, I was told in no uncertain terms that the 9 per cent return was a show stopper. If we couldn’t get to that, then the project would not proceed.
“Why is that important? Well, by that time a lot of people had invested both time and money into this, they couldn’t allow it to fail. KPMG was used as a shield and asked to check the numbers. But KPMG’s numbers were only as good as the information they were given.”
The best that the LibDems could offer when confronted with the facts of their failing business was to accuse the opposition of “muckraking of the worst kind”.
But Gray countered, “Without an independent investigation into the formation and running of SDEN, our customers and potential business partners will simply see a business that is founded on dodgy business plans, sky-high energy charges and third-rate levels of supply and service.
“We cannot keep on blaming others when the problems lie within.”
Residents and opposition councillors will now be keeping a close eye on who is chosen to be the “independent” investigator, with many suspecting that – despite assurances from McCoy of a rapid outcome – they could be kept waiting until beyond the local elections next May.
Read more: Sutton accused of ‘misleading’ over SDEN and the Heat Trust
Read more: SDEN: A timeline of council bungling and sky-high fuel prices
Read more: Thousands left freezing as council heating network fails again
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