Who runs Teesworks? Houchen’s blunder

Bulk terminal, Teesworks
Photo by Scott Hunter

It’s 28 July 2020, and Ben Houchen is making a presentation at a Tees Valley Business Club event. The South Tees Development Corporation (the Corporation), the first of its kind outside of London and responsible for 4,500 acres of ex-industrial development land, is being rebranded as Teesworks, he tells his audience. He also uses the occasion to introduce the Corporation’s new partners – local property developers Chris Musgrave and Martin Corney.

He explains to his audience how their assistance in negotiating the purchase of land from three Thai banks has been invaluable:

“While I worked with my team, sometimes long into the night and across many tiring weeks to secure the deal for the former SSI land, both Chris and Martin, and their colleagues, were there with us on this journey, helping us to get this over the line. Put simply, it would not have happened without their commitment, experience and unwavering support.”

Their reward, it seems, is a partnership deal with the Corporation.

Land ownership on the STDC site

When the Corporation was created in 2017, it did not yet own all of the land parcels on the site to be developed. The two main external landowners were Tata Steel, with 1420 acres, and three Thai banks that held mortgages on the land owned by Sahaviriya Steel Industries UK (in receivership) (SSI), with 870 acres, on which stood, among other things, the Redcar Blast Furnace and the Dorman Long Tower. The parent company, SSI PCL was guarantor for those mortgages. 

The purchase of the Tata land had been relatively straightforward, but three years of negotiation with the Thai banks had been unfruitful. In the end, the Corporation decided that the only way out of the impasse was to force the sale of the land through a compulsory purchase order (CPO).  It was this that had Houchen, his team, Musgrave, Corney, and their colleagues up through long nights in February 2020.

Some in his audience, however, may have paused to wonder just how Corney and Musgrave came to be there in the first place, given that the Corporation had not previously expressed any desire to cooperate with any third parties to complete the CP process. Had Houchen asked them to get involved?  Had they just offered to help?  Or did they have skin in the game?

Background to redevelopment plans for the site

SSI went into receivership in 2015, and steel making in Redcar ceased. By now most of the land on the STDC site was derelict, much of its infrastructure in a dilapidated state. And the decaying structures on the site were in a perilous state. In 2016, before the Corporation was established the government set up a company – the South Tees Site Company – to maintain the site, which had the highest level of COMAH (control of major accident hazards) status. This company was managed by BIS, now the Department for Business, Energy and Industrial Strategy (BEIS), with a budget for keep safe works of £71 million.

Not all of the site was derelict, however. It contained Teesport, run by PD Ports, the Redcar Bulk Terminal, the British Steel beam mill at Lackenby, and a few other enterprises.

When the Corporation was formed in 2017, it drew up a masterplan for the redevelopment of the site (revised in 2019). Included in this were proposals to acquire all of the land, excluding Teesport and the companies clustered around it. On the other hand, it did propose to acquire the derelict land owned by Tata and by SSI, as well as the bulk terminal, which is the deepest port in the UK and stands at the north end of the site. Around that time, Tata sold its 50% share in the terminal to British Steel (Greybull Capital). The other 50% was owned by SSI (in receivership). The masterplan also undertook to preserve two heritage sites – the blast furnace and the Dorman Long Tower.

Purchasing the Tata land

Tata owned 1420 acres of derelict land on the site. At the beginning of 2019, they prepared to sell this to the Corporation. To manage the purchase (and the associated liabilities) the Corporation set up a wholly-owned company – South Tees Developments Ltd, a so-called Special Purpose Vehicle (SPV). It was intended that this company would handle the purchase of both Tata and eventually SSI land

The purchase of Tata’s landholding appears to have been fairly straightforward and was completed within weeks. The Corporation turned its attention to the more problematic acquisition of the SSI land.

STDC vs SSI. Three years of acrimony

The threat of compulsory purchase had hung over negotiations to buy the SSI land since early 2018.  The difficulty in trying to negotiate a deal over the sale of the land was that the Thai banks, as seen in the evidence presented later to the Compulsory Purchase Inquiry, believed that the Corporation’s valuers – Avison Young – had undervalued it.

It was when the decision to go ahead with the CPO, at a Tees Valley Combined Authority (TVCA) cabinet meeting on 15 March 2019,  that the public first got a glimpse of Houchen’s perspective on the issue. He was in bullish mood when he made this statement to the press:

This statement, and others in a similar vein, were later used by representatives of SSI in evidence.  Thus Simon Melhuish-Hancock, “UK General Counsel for Sahaviriya Steel Industries Public Limited Company (SSI), the parent company of SSI UK” (as he explains in his written statement of evidence to the CPO inquiry 21 January 2020):

Notice that Houchen’s here statements might be neatly summed up as ‘Take Back Control’. He was using the purchase of SSI land to play to the gallery. And the Thai banks did not take kindly to being used as props in a political campaign.

It got worse.

As Melhuish-Hancock explains, a meeting was set up in March 2019 between the banks’ representatives and Houchen’s team, which included TVCA vice-chairman, Steve Gibson. It did not go well. As he says,

“Almost as soon as the meeting opened, the representatives of the Thai Banks were shouted at by Mr Steve Gibson, a director of the Development Corporation, stating that ‘… I will not recognise the agenda. This meeting will not last five minutes …’, before trying to throw the agenda across the table at the Thai Banks’ representatives. The Development Corporation’s team then 12 walked out of the meeting after less than half an hour in the meeting room.”

When Melhuish-Hancock goes on to say that Thai people are very polite and non-confrontational, and that the bankers were highly offended by Gibson’s outburst, he may be exaggerating the impact of the offence caused, and that the Thai bankers were not quite as delicate as he would have us believe. But there can be little doubt that Houchen’s grandstanding, and Gibson’s lack of social graces did not help matters.

As preparations for the CP inquiry went ahead, it became apparent that Houchen and Gibson were completely out of their depth and that in their negotiating strategy they were guilty of a serious error of judgement.

SSI Objections to the CPO

  1. The corporation was not offering fair market value for the land.
  2. The Corporation had moved to CPO when it did not have the money to finance the purchase.
  3. The Corporation had, in numerous documents, made it clear that acquiring the Redcar Bulk Terminal was integral to its project, but the CPO as put forward did not include it. Therefore the CPO could not achieve the objectives of the STDC masterplan.

As if to underline the truth of SSI’s claim that it couldn’t afford the purchase, the Corporation, having insisted throughout 2019 that it could draw on finance from a number of pockets, then claimed that a government grant of £71 million in mid-January 2020 meant that it now had all the finance needed

Houchen’s claim here seems to indicate that SSI’s earlier objection had hit a raw nerve. And we might surmise that the reason that the corporation had removed Redcar Bulk Terminal from the CPO was precisely because it couldn’t fund the purchase at the time that the CPO was initiated, and the plan was to delay that purchase until a later date when more funding became available.

Coincidentally, while preparations were underway for the CPO, the collapse of British Steel was announced. While Chinese steel maker Jingye was interested in the steel plants, it had little interest in the bulk terminal. British Steel wanted to sell its share, but there is no evidence that the Corporation made any attempt to buy it. It was bought up by SSI UK for £11.3 million in February 2020.

In 2019, when the CPO plans were drawn up, it was against a backdrop of chaos in Westminster, as Theresa May’s government stumbled and then collapsed, Johnson took over, became embroiled in controversy over the prorogation of Parliament and the sacking of 21 Tory MPs, followed by a prolonged bout of election fever. The STDC simply wasn’t in the spotlight, and so-called ‘levelling-up’ hadn’t been invented. So, the £71 million, while welcome, came late (and with strings attached, that weren’t reported in the press at the time).

While notification of additional funding arrived too late to affect the CPO itself, it at least provided Houchen with an opportunity to control the headlines. The announcement arrived just days before the submission of witness statements on behalf of SSI on 20 and 21 January.  n his rebuttal proof of evidence, Peter Roberts, on behalf of SSI, pointed out that the £71 million was ‘not committed’, i.e. it was conditional on the STDC making a successful business case for it.   

He pointed out, furthermore, that, while the purchase was to be funded by £56.5 million from the STDC, this sum was a loan not a grant, and would have to be repaid. In addition, the Chief Finance Officer, Gary MacDonald, had failed to take account of the fact that some £12 million of this had already been spent. The project, therefore continued to be seriously underfunded. These unfortunate facts did not attract press attention, however.

The weakness of SSI’s case, on the other hand, was that it asserted that the land could be redeveloped privately without recourse to public sector intervention or funding.  It pointed to a number of instances where parties had expressed an interest in operating on parts of the site, without the need for redevelopment.  The trouble was that some of the discussions they had had with other companies had already come to nothing, while, in certain cases, companies interested in setting up operations on the land had approached the STDC rather than SSI (most notably a South African company called Portnex).  In his rebuttal proof of evidence on behalf of the STDC Guy Gilfillan of commercial estate agents, Colliers International, had little difficulty in dismantling the credibility of these proposals in his evidence.

Except for one thing, which was the stated value of the land in the documents in which Portnex was discussed. Peter Roberts’ evidence, on behalf of SSI, relates that Portnex wished to lease 300 acres of SSI land containing the Redcar Coke Ovens, which they intended to restart (for methanol production). This would be at a cost of approximately £10 million up front followed by £6 – £8 million in annual rent, while the Corporation was offering the Thai banks £14 million for 843 acres freehold.

One possible explanation for this vast discrepancy in valuation may be found in the details of the proposed contract with Portnex – what they called a ‘pie crust contract’, whereby “ essentially any historical environmental liabilities would remain with Development Corporation but any new liabilities will be the responsibility of Portnex.”

But three years on, there’s no sign of Portnex. While this may be evidence of the precarious nature of the redevelopment and the fact that time and effort has to be spent on negotiations that may not bear fruit, it may also be evidence of something less edifying.

Workers spoken to from the South Tees Site Company, the company responsible for the keep safe work on the site, report that the Redcar Coke Ovens are dilapidated and beyond use (and are now scheduled for demolition). That, in 2018, senior management officials at the STDC thought they could be sold on to be restarted by Portnex may evidence that the higher echelons of the STDC ae home to people who believe in the tooth fairy, in a manner of speaking (and, for the benefit of anyone who objects that the STSC workers are not structural engineers, we should point out that if a proper structural survey of the ovens was carried out in preparation for the discussions with Portnex, we are yet to see evidence of it). Yet board members were happy to predict in 2018 that this contract was going to solve their cash flow problems.

A spanner in the works

Houchen and the Corporation might have regarded the CPO inquiry as a formality, and almost certain to go in their favour.  The only thing that could stand in their way would be if someone stepped in and made SSI a better offer.

And as the evidence on behalf of SSI shows, this is precisely what happened.  Enter none other than Chris Musgrave and Martin Corney.

The revelation in the evidence of Simon Melhuish-Hancock, on behalf of SSI states that in December 2019, solicitors acting on behalf of Corney and Musgrave had approached the Thai banks with a proposal to buy the SSI land and SSI’s 50% share in the Bulk Terminal. That offer, he reports, was substantially higher than that offered by the STDC:

As he says, at the time of the submission of his evidence, discussions were ongoing. Were this to lead to an agreement, it could have entirely derailed the STDC project.

In his rebuttal proof of evidence, Gilfillan dismisses the approach as speculative, and in need of much more time than was available to “understand the site and its complexities”.

While Gilfillan may have a point, there are a few things that we should add. Melhuish-Hancock mentions a total of three organisations with which SSI had entered into discussions. One was major brownfield property developer, St Modwen, a second was Chinese steel maker Jingye that was, at that time in the process of acquiring the nearby Lackenby beam mill (and, potentially British Steel’s 50% share in the Bulk Terminal). Neither of these negotiations had borne fruit, however, and they are notable only by how they differ from the approach by Musgrave and Corney of DCS Industrial.  Both St Modwen and Jingye are large, well-established companies, with international reach.

DCS Industrial Ltd, on the other hand is not. Incorporated towards the end of November 2019, about a month before its representatives proposed the purchase of SSI land (and simultaneously expressed an interest in leasing a land parcel on RBT land). Both Corney and Musgrave are local, and it would have been an unusual project for both of them (as Gilfillan hints at in his evidence) given the levels of contamination on the land (Musgrave’s business largely involves the development of business parks, while Corney is a housebuilder, with a particular interest in the creation of garden villages on greenfield sites). 

While their inexperience of development on a site such as the SSI land (and of the land parcels on the STDC site the SSI land has the highest levels of contamination) may justify Gilfillan’s opinion that they were just testing the waters, SSI had nothing to lose by selling to them if it could cement a deal, even if they seemed unlikely purchasers.  

Gilfillan goes on to speculate in his evidence that, any purchase by Corney and Musgrave would come at the end of months of negotiation and was therefore unrealistic in the very limited time left before the CPO inquiry was complete.  Maybe Gilfillan was being naïve here.  All you need is guile, as you might say.

The Thai banks withdraw their objections to the CPO at the eleventh hour

Written evidence was presented in mid to late January 2020, in advance of the CPO inquiry itself, which was scheduled for early February.  By 20 February 2020, it appeared that Corney and Musgrave’s bid must have failed, as, according to the Financial Times, the banks agreed to the sale of 840 acres of the SSI land to the STDC, and announced that, but for a few minor issues, would cease fighting the CPO.

There is no record of what happened to Corney and Musgrave’s bid. Did they withdraw it? Did the Thai banks just decide they wanted to accept a lower offer for the land from the STDC?   In his decision on the CPO in April 2020, the Planning Inspector, Philip Ware, lightly dismissed the project saying, “There is very little evidence to support this option, nor of the way in which it might align with overall proposals”.

Now, you might expect that, having tried to subvert the Corporation’s compulsory purchase order with their hostile counter-bid, Corney and Musgrave would acquire pariah status at the STDC, but not a bit of it. 

Corney and Musgrave make their entrance at the STDC

It was a win-win situation for Corney and Musgrave. What was once unwanted, derelict land, was now wanted by a corporation that had government funding. Had they bought the land, regardless of the cost they would have an asset that the STDC needed to fulfil its masterplan. Without it, the masterplan would have been in ruins.

On the other hand, the simple threat to steal it from under the Corporation’s nose would have given them leverage in negotiation with Houchen. A key question that Houchen has to answer is whether Corney and Musgrave used their advantage to elicit concessions from the Corporation. 

On 13 March 2020, a month before the planning inspector had delivered his decision on the CPO, the STDC/Tees Valley Authority director of finance and resources, Gary MacDonald, submitted a report at a TVCA cabinet meeting in which he proposes that the board agree to entering into a joint venture partnership with an unnamed third party. It does not give any detail on the process undertaken to select this partner. Perhaps this is a company belonging to Corney and Musgrave.

As the partner is not named, we wrote to Gary MacDonald to ask him who it was. When he didn’t reply, we submitted a FOI request to the TVCA to obtain this information.

When the governance department didn’t reply either, we wrote back and asked them to acknowledge receipt of the request. They didn’t respond. However, we have observed that in later reports reference is made to ‘the joint venture partner’, i.e. in the singular, so we think it safe to assume that it is the Corney and Musgrave company, South Tees Enterprise Ltd. (The partner is not named in any official report that we have seen. Corney and Musgrave and their companies are named in TVCA publicity, but not elsewhere)

But that’s not all. In the same month, Teesside Airport (TIAL), brought into public ownership on Houchen’s initiative in 2019, was also in the process of acquiring a joint venture partner. In this case it was a partner who would help to create a business park on 270 acres of land on the south side of the airport. On 20 March, Darlington Council (which has joint responsibility for planning decisions on airport land, along with Stockton Council), published details of their recommendation to accept the partnership bid of another Corney and Musgrave company (as is established practice among property developers, a separate company is set up for every new venture. 

Teesside International Land Ltd was a very positive choice. Clearly, the TVCA had decided to let bygones be bygones over Corney and Musgrave’s recent attempt to scupper the STDC compulsory purchase order.

One curious feature of the Darlington Council document is that it mentions certain elements of process that are absent from Gary MacDonald’s earlier TVCA report: “Legal advice to TVCA identified that an OJEU procurement was not necessary …”

We would like to locate the document that states the legal advice given to the TVCA on whether it was necessary to follow OJEU procurement rules when signing up the unnamed STDC partner.  Perhaps Gary MacDonald will provide it when he gets back in touch.

Because a partnership appears to have been proposed without any of the proper (Green Book) procedures being followed.  Someone in government must have then sanctioned that (possibly at BEIS, or possibly the Treasury). We would like to know who that person is.

Corney and Musgrave establish themselves within the STDC governance structure

Life just kept getting better and better for Corney and Musgrave. By 5 May 2020, when the corporate governance structure diagram below was published, they partly owned one, and fully owned two of the companies shown there:

When this document was published, South Tees Enterprise Ltd (STEL) was 100% owned by them.  They had a 50% share in Teesside International Airport Business Park Ltd, and they owned DCS Industrial (South) Ltd.  The document that contains this diagram mentions STEL only once, as contributing in some obscure way to the ‘rail management business case’. Furthermore, the role of DCS Industrial (South) is not mentioned at all.

In the weeks leading up to the Tees Valley Business event we know only one thing about DCS Industrial (South) which is that in April 2020 it was paid £87,392.50 for ’consultancy’. What it was consulted on is nowhere recorded.

In July, things changed again.  STEL co-opted TVCA chief Executive, Julie Gilhespie, as a director of the company, at which point it changed its name to Teesworks Ltd, and Houchen then launched the newly reorganised venture.

To sum up …

To put all this into perspective, the two property developers had, within the space of eight months, gone from attempting to subvert the CPO process whereby the STDC would acquire the SSI land to having two separate joint venture partnerships with different arms of the Tees Valley Authority, and 100% ownership of a third company that featured in the governance structure of the STDC, whose role remains entirely obscure. 

It makes you question just who Houchen was really negotiating with in those long nights in February 2020 when the deal with the Thai banks was finally hammered out. What was Corney and Musgrave’s real aim in approaching them in December 2019?  Were they genuinely trying to buy up the land and scupper the Corporation’s plans, or were they using it for leverage to gain access to the STDC? Did they assist Houchen in those negotiations or did they corner him?

In the second part of this series, we will examine how the Corporation has benefited (or otherwise) from the partnership.

Tees Valley mayor, Ben Houchen, has been contacted for comment on the issues raised in this article

Please follow us on social media, subscribe to our newsletter, and/or support us with a regular donation