The race track, which was set to bring 6,000 jobs to Blaenau Gwent, will not go ahead unless the current investors Aviva are happy to proceed without Welsh Government support as economy minister Edwina Hart today announced it would be too risky for the Welsh Government to underwrite Aviva’s entire £357.2 million investment in the scheme as she outlined concerns about the viability of the project.
Alternatively new investors would need to be found.
The Welsh Government has already spent around £9 million on the project.
The scheme had been widely welcomed by residents and business owners and had been called a “matter of survival” by community leaders and comes at a time when Wales sees new automotive manufacturing plants from Aston Martin and TVR.
Supporters of the racetrack, which was due to be start being built this April, called the prospect of it not going ahead “deplorable”.
In her letter to the First Minister Carwyn Jones, Ms Hart said: “The final official advice recommends that I should not agree to underwriting the £357.4m Aviva investment in the scheme for two reasons.
“Firstly the significant question around the viability of the project and secondly the unacceptable risk to the Welsh Government of in effect underwriting the entire project.
“These two factors mean that there is both a significant value for money gap and a real legal challenge around issuing such a guarantee.
“Having consistently challenged the commercial and legal advice, which has been provided both from within my team but also from external advisors (PWC and Geldards LLP) and having now seen the final external advice I have reluctantly come to the conclusion that we cannot proceed to issue such a guarantee.
“It is important to remember that this project started as being a one that would be fully funded by private sector risk Capital without the need for a Government guarantee.
“At this stage we made a commitment to part fund the development of the project and agreed to grant aid around £16m towards certain aspects of the Circuit (primarily to support further job creation) on the condition that the project proceeded.
“The final ask of the Circuit of the Welsh Government to underwrite the full value of £357.4 million and also to grant aid £16 million increases our exposure more than twenty times.
“As you will be aware we have been working to support this project for a significant period of time and have already in effect spent around £9m in support of its development. We also explored sharing the risk with several local authorities, and as you are aware that option also failed unfortunately.
“In these last few days we have considered that a guarantee of 80% of the total value of the project may have reduced our risk to an acceptable level, but the Circuit have not been able to secure any real private risk capital and so this option has not been possible.
“As stated above and very reluctantly I think the only conclusion can be to not issue such a guarantee. Having said this, and given our existing substantial investment in the project, it is important that we keep the door open to any new investors who might be able to take this project forward.”
Aviva Investors declined to comment. It is not yet unknown whether they will keep their investment.
Leader of the Welsh Conservatives, Andrew RT Davies, said: “It’s deeply disappointing but entirely predictable that Welsh Labour Ministers have waited until dissolution to make this announcement, giving assembly members no opportunity to ask questions.
“Clearly the Welsh Government has to be cautious and careful about the money it spends, but it is ironic that in a week where they’ve asked for the UK government to underwrite the future of the steel industry they’re unwilling to back what would be an exciting, flagship scheme.”
