A SECRET report leaked to the Western Mail suggests that the Welsh Office provided misleading figures to the European Commission in order to ensure that massive state backing for the ill-fated LG project at Newport could go ahead.
Under European rules, there are strict limits to the proportion of state aid that can be offered to inward investors.
In 2003, by which time it had become clear that the South Korean LG group would not be going ahead with the major part of the project after all, the WDA sought advice from solicitors Slaughter & May about the prospects of reclaiming many millions of pounds that had been given to LG.
At the time, William Hague was Secretary of State for Wales and in charge of the Welsh Office. He later became Tory leader and is now the Shadow Foreign Secretary.
The 33-page Slaughter & May report, which has now been leaked to the Western Mail, outlined serious inconsistencies between figures provided by the Welsh Office to the European Commission, which showed LG to be putting in £96m more than LG had actually committed to the project: “Whatever the precise reasons, there is a £96m difference between LG’s own intended investment figures (which do not appear to change from October 1996 to April 1997) and those which appear in the written submissions to the EC Commission during January 1997. In the circumstances it may be possible for LGEW (the LG subsidiary set up specially for the Newport project) to paint a picture of the public sector in Wales led by the Welsh Office and the WDA being willing to and having motives to go beyond normal limits, specifically in relation to their presentation of the investment figures to the EC Commission, to ensure that the EC Commission did not object to the proposed aid:
LG’s proposed investment was the biggest ever investment in Europe by an outside company.
The contemporaneous documentation we have reviewed demonstrates that the Welsh Office and the WDA were determined that the investment should be made in South Wales. Indeed, the Welsh Office’s direct assurance to LG that if the EC Commission were to object to the proposed aid, the UK Government would find a way to give the assistance which had already been, in principle, agreed, demonstrates this resolve.
By November 1996 LG had become very nervous about the need to approach the EC Commission and how it would react. It is fair to say that the Welsh Office’s assurances to LG about how the submission was faring do not reconcile easily with the EC Commission’s rather negative responses.
It seems that the Commission’s negative response to the notification dated December 6 1996, in particular in relation to the contention that the PDG (Property Development Grant) was not state aid and that the Monitors Project and the Semicon Project ought to be treated as a single project for assessing aid intensity came as an unwelcome surprise to the Welsh Office. On the basis of the investment figures presented in the notification for the Monitors Project, the proposed aid did not fall within permitted limits.
It seems that the Welsh Office did not, despite being asked, share with LG the contents of its communications with the EC Commission.”
The report then set out starkly the difficulty of the Assembly’s position when seeking to reclaim grant money given to LG: “Leaving aside the true meaning and effect of the agreements, the risk we perceive for the Welsh Assembly and the WDA is this: if there is a determination to seek recovery of the full £87m paid to LGEW by way of grant upon disclosure (which both organisations will be required to make in the event of litigation) LGEW may consider that in the absence of proof of a genuine error there is a sufficient basis for alleging that the Welsh Office and the WDA deliberately misled the EC Commission and procured the latter’s non-objection to the proposed aid on a false basis, specifically the presentation of unfounded investment figures. LGEW may then argue that the Welsh Office and the WDA led LGEW to believe that the Commission’s non-objection was unsafe and it may, in turn, seek to bring a counterclaim in the amount of the investment which it would not otherwise have made.”
The project was expected to create 6,100 jobs. At its peak, LG provided 2,200 jobs before the CRT (cathode ray tube plant closed in 2003 and the monitor assembly plant closed in 2006.
Eventually, in an agreed settlement, the Assembly Government and the WDA reclaimed £71m of the £131m paid to LG.
Plaid Cymru leader Ieuan Wyn Jones said, “Obviously we have been misled by the Assembly Government about exactly what went on in connection with the LG project, which would have been the largest ever inward investment project in Europe. No details of this report from 2003 have been provided to Assembly Members.
“I think it is essential that the Assembly’s audit committee looks at this newly disclosed material as a matter of priority.”
An Assembly Government spokesman said, “The Wales Audit Office undertook a thorough and definitive enquiry into the LG development which included consideration of the letter from Slaughter and May. The conclusions and recommendations of the WAO report have been accepted by the Welsh Assembly Government. The WAO report was also considered by the National Assembly for Wales Audit Committee and a response from them is anticipated later in the year.
“The letter states that the advice contained in it ‘has necessarily been limited’ and that the contents of the letter ‘should not be regarded as a definitive or comprehensive statement of the facts and/or analysis of them’.
“The legal position in relation to LG was already the subject of evaluation by Welsh Assembly Government lawyers and leading Counsel, and the Slaughter and May letter was therefore not relied upon by the Welsh Assembly Government in assessing the legal position on state aid. The settlement, subsequently negotiated with LG, was referred to and endorsed by the European Commission. It was a good settlement for the Welsh authorities and that is acknowledged by the Wales Audit Office in their report.”
William Hague declined to comment.
Page 2 - A year by year chronicle of LG’s involvement in Wales