IN our last two articles for The National, we began a discussion about some of the priorities Scotland will need to consider as an independent country to achieve maximum possible self-sufficiency in key economic sectors, such as food and energy.

These are critical to achieving political and monetary sovereignty and maintaining the value of our currency. By allocating capital to investment in strategically important economic sectors we will secure the future viability and trust in our currency.

Last week the focus was on an example in the food sector where we argued that a large local government pension fund – Strathclyde Pension Fund (SPF) – has real potential to provide capital investment in the form of equity as a partner to a Scottish buyout of the McVitie’s factory in Tollcross in Glasgow.

We argued that the SPF has an obligation to offer capital investment if a viable new business plan for the factory under new ownership can be developed, because the workers at the factory help to fund the SPF through the council taxes they pay.

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This week we will focus on the energy sector and consider how Scottish financial institutions can play a vital role in providing capital to create the energy infrastructure of the future. The National reported on June 2 on a major proposed renewable energy project in the North Sea (“£10bn plan to speed up oil and gas decarbonisation in Scotland unveiled”). This is a proposal from renewable energy company Cerulean Winds to build and operate an offshore floating wind farm supplying clean power to offshore oil and gas facilities, for green hydrogen production on shore using electrolysis and supplying power to the national grid.

Leaving aside for the moment the issue of whether supplying power to oil and gas installations is economically viable when we really need to be phasing them out rapidly, this type of project is typical of what Scotland needs to be doing in order to deliver the transition to a zero-carbon economy. The challenge is to ensure that ownership of this infrastructure remains in Scottish hands and that Scottish-based finance is available to deliver it.

Banks in Scotland lend primarily for mortgages and consumer spending and until we can change this, the heavy lifting when it comes to providing capital for energy infrastructure will have to come from a National Investment Bank (NIB) and Scottish pension funds.

With our own currency Scotland will have the means to create a powerful NIB, much larger in scale and capacity than the limited pea shooter we now have.

Our pension funds already command large amounts of capital. The Scottish Local Government Pension Scheme (LGPS) commands about £45bn of assets. At present these are largely in the form of tradable financial securities such as shares, government and corporate bonds, currencies, commodities and a variety of derivatives. Little of this form of investment supports productive activity and there is considerable scope for pension funds to reallocate capital to direct investment as partners in energy infrastructure such as the Cerulean Winds project which is looking for £10bn.

A search of the Cerulean website will provide some detail on how they are seeking to finance the project. It is likely that investors in the “special purpose vehicle” (SPV) being created to manage the finances will be major global institutional investors, meaning that ownership of the infrastructure will not be in Scottish hands and the equity (shareholdings) and debt (bonds) will be bought and sold at the whim of overseas investors. Is this how we as a nation want to build the energy infrastructure of the future?

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By investing directly as partners in this sort of venture, our pension funds can play a crucial role in providing the capital needed and can subsequently benefit from the rich revenue streams which will flow from such investment.

Energy has high use value – all of us need energy to power our lives – so investments in our future energy needs are low risk because of the long-term revenues they will generate. If the infrastructure is in Scottish ownership then all the revenues flow back into our economy and do not leak away overseas, thus creating a virtuous circle which increases the resilience of our economy and the value of our currency.

We are not suggesting that LGPS funds should provide all of the £10bn of capital for this venture. Any developer would need to provide capital as well and undoubtedly would seek capital from a range of investors, both domestic and foreign.

The important aspect of both NIB and LGPS investment comes from locking in commitments and the prohibition of transfer of ownership without mutual agreement. Such a contractual agreement would help protect the assets from any unwanted takeover by foreign companies.