The LG manufacturing development at Imperial Park in Newport was one of the largest ever inward planned investments in the United Kingdom when it was announced in 1996. But, while the projects began well, they were never completed at the scale planned and fewer than half the expected jobs were ever created.

The report focuses on the grant funding provided by the WDA and the Welsh Office – subsequently the Welsh Assembly Government – and concludes that they obtained the necessary approvals and undertook appropriate due diligence. But the aid package was larger than expected and risky:

• it was potentially front loaded, with most assistance payable in the early stages of the projects. This created a major risk for the Welsh Authorities, since they had limited recourse to recoup their payments if investment by the company and job creation did not materialise as planned
• approval for the aid package from the European Commission was based upon cost estimates that cannot be fully substantiated

The report concludes that grant aid payments to LG, once the aid package had been agreed, was well managed in most respects, but the state aid position should have been monitored more closely. The Welsh public bodies didn’t know until early 2000 that the state aid limit was being exceeded by a considerable margin, and only at this time did they alert LG to the position.  However, once it became clear the projects would not proceed as envisaged, the Authorities acted appropriately to recover public funds and secured defensible settlements with both companies.

The report makes ten recommendations to improve the management of state aid provision, including:

·            being as open as possible with the recipient on state aid issues, unless there are compelling reasons otherwise;

·            substantiating and documenting fully investment figures submitted to the European Commission as part of the state aid approval process; and

·            including in grant agreements suitable conditions for withholding and recovering grants before the completion of a project, based on specific criteria, as well as recovering grants after completion.

The Auditor General, Jeremy Colman, said today:

“The LG development represented one of the largest inward investments in the UK and could have brought significant employment to Wales. While some uncertainty is unavoidable when awarding public funds to attract inward investment, the provision of state aid should be closely monitored at all times and recovery plans and legal agreements tightened to safeguard significant loss to taxpayers in the event that projects fail, as was ultimately the case with LG.”

Notes to Editors:

·          This report considers whether the Welsh Authorities adequately protected their investment in the projects after the development was announced in 1996, and in particular, whether the final settlements with the companies were a good deal for the taxpayer.

·          The term “Welsh Authorities” is used to refer to the four public sector bodies that provided the aid package to LG. These were the Welsh Office (later the Welsh Assembly Government), the Welsh Development Agency (WDA, which merged with the Welsh Assembly Government in April 2006), Gwent Training and Enterprise Council (later part of ELWa, which in turn merged with the Welsh Assembly Government in  April 2006) and Newport County Borough Council (latterly the City and County of Newport).  The focus of the report is very much on the WDA/Welsh Office/Welsh Assembly Government, which provided most of the aid.

·          The LG development comprised two distinct projects. LG Electronics was a complex of factories manufacturing cathode ray tubes (for colour television sets and computer monitors) and associated components. LG Semicon was a semiconductor fabrication facility involving the manufacture and testing of semiconductors.

·          The Wales Audit Office is independent of government and is responsible for the annual audit of some £19 billion of annual public expenditure.

·          The Wales Audit Office was created on 1 April 2005 following the passing of the Public Audit (Wales) Act 2004, which expanded the functions of the Auditor General for Wales and enabled the transfer of staff from the Audit Commission in Wales and National Audit Office in Wales to his employment.

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For more information please contact Lisa Smyth on 029 2026 2673 or email lisa.smyth@wao.gov.uk