Salmond targets Qatar for cash

Scotsman: ALEX Salmond is to ask a cash-rich Arab state to stump up billions of pounds to pay for desperately-needed upgrades to Scotland's creaking road, rail and power networks.
The First Minister will head to Qatar next year with plans to persuade the oil-rich emirate to act as Scotland's banker. Salmond wants Qatar to loan funds for massive capital projects the Scottish Government cannot afford, including the £4bn new Forth Road Bridge and a £5bn undersea electricity cable.

The plan – dubbed by critics a "Middle Eastern PFI" – would involve the Scottish Government paying back any loans over decades.

Labour last night warned the plan could lead to Scottish assets falling into the hands of foreign owners, who stood to make huge profits out of any investment.

But observers say Salmond has few options: the Scottish Government has too little surplus money in any year for major projects and the SNP has itself ruled out conventional PFI funding.

Governments across the Western world are looking towards the Middle and Far East to secure finance from their sovereign funds, the state-owned investment funds which nations such as Qatar have built up on the back of huge oil profits.

Qatar's fund alone is now believed to be worth $60bn, a figure which is expected to double by 2010. The International Monetary Fund, a global organisation which lends money to struggling nations, says that total investments by sovereign funds will hit $12,000bn by 2012.

Any deal with Scotland would see a foreign sovereign fund paying up-front to build a major project, and then being paid back over a number of years, with interest.

The Scottish Government is understood to have already begun preliminary talks over the plan for a huge under-sea electricity cable in the North Sea, which would allow wind and wave power from the north of Scotland to be transmitted to the south of England.

Bankers are already eyeing up major projects, such as the new Forth Bridge as a possible contender for Middle Eastern investment.

One Edinburgh banker said: "The Scottish Government is looking at sovereign funds, along with everyone else. This is a fact. You follow the money and it goes to the Middle East. They are trying to do just that."

Scotland on Sunday can reveal that Salmond has personally requested that the Islamic Finance Council – a Scottish-based body which represents Islamic financial interests – to explore "the possibility of using Islamic financing structures to address the infrastructure needs of Scotland".

Under this scheme, ministers would issue a special bond which meets Islamic ethical investment standards in return for up-front funding – known as a Sukkuk. The UK Treasury is understood to be about to issue such a bond later this year.

It is required if governments are to fully tap into the vast resources held by the Middle Eastern sovereign funds.

Omar Shaikh, a board member at the IFC, said the moves simply reflected the new world order in the wake of the credit crunch, which has seen loans from banks dry up.

He said: "Where is the money at present? It is in these sovereign funds. You are looking at £5 trillion of wealth. It is a problem for them to find quality assets to invest in."

Of Salmond's visit to Qatar, he added: "This kind of plan is something we have been promoting for some time. Scotland is actually slow in getting off the mark here. Obviously, it is important that Scotland gets the best deal, but it is also important that we deal with those who have the money."

The Qatar visit has been planned for some time and follows similar visits by political leaders in both Wales and Ireland. A spokeswoman for the Scottish Government said: "The Scottish Government is in ongoing discussions with the Qatari government, exploring options for a possible visit by the First Minister intended to establish broader business and investment links."

A source close to the First Minister added last night: "In challenging economic circumstances, it is even more important that the Government pursues every single business and investment opportunity to grow the Scottish economy."

The potential for a deal is nearly limitless, say finance chiefs. A report by the IFC to the Scottish Government, submitted earlier this year, specifically focused on the Forth Road Bridge.

It declared: "Market reports indicates that the Scottish Government is looking for funding of £3bn+ in the coming years, indeed the cost of a new Forth Road Bridge is estimated to be between £3.2bn and £4.2bn. Within the budget constraints that the current Scottish Government has to work within they need to look for more radical funding streams, different funding streams, innovate funding options."

The IFC says the taxpayer could be better off under such an arrangement than under the old PFI scheme, as rates of return would be more attractive.

The task of securing funding for Scotland's major infrastructure projects has now been handed over to the Scottish Futures Trust, headed by Sir Angus Grossart.

However, Labour last night said the plans smacked of hypocrisy. Finance spokesman Andy Kerr said: "For Mr Salmond and his party, who spent the last few months and years telling the people of Scotland that they were against private profit in public services, it is ironic and hypocritical of them to be now chasing sovereign funds in the Middle East."

He added: "However, given the record of recent sell-outs by the SNP, the people of Scotland will be not be surprised. They have spent the last 18 months trying to replace PPP, shattered confidence in the marketplace in Scotland and came up with the Scottish Futures Trust, or as Unison and almost everyone else would call it, PPP Mark Two. Now they know they have a problem funding their commitments they are off to the Middle East to sell Scottish assets to foreign investors."