Circuit of Wales Under Threat as Welsh Government Refuses to Underwrite Project

The Circuit of Wales was dealt a significant setback on Wednesday, after the Welsh Economy Minister refused to offer a 100% guarantee for the £357 million development project. Without the guarantee, the future of the project is now uncertain, with doubts over the willingness of Aviva, a British insurance company, to continue with backing for the project. 

After a long period of preparation, which included a Public Enquiry on the transfer of public lands, work was set to start on the circuit, set just outside Ebbw Vale in South Wales. Work had already started to get the site of the circuit ready to start construction. 

The final piece of the puzzle had been secured several weeks ago, in the form of financial backing from Aviva. However, the Heads of The Valley Development Company had asked the Welsh Government to underwrite 100% of the investment in the project, with reports in the regional newspaper South Wales Argus suggesting that such demands had come from Aviva. 

Welsh Economy Minister Edwina Hart wrote to the Welsh Assembly to inform its members that the Welsh Government could not underwrite the entire project cost. She wrote that there was "a significant question around the viability of the project" and that backing it was therefore an "unacceptable risk". The offer of an 80% guarantee had not been accepted.

Speaking to BBC Wales, the Economy Minister said she had been advised the project was too risky to underwrite fully. With Aviva refusing to underwrite 20% of the project, Hart told the BBC "there is no private money in this" and that therefore the risk would have fallen entirely on the taxpayer. This was not a good investment for the public purse, Hart said, telling the BBC "The advice to me was that it was not value for money, it was far too much of a risk for government."

Without the backing of the government, it is unclear how the project will proceed. The HODVC are still confident of being able to complete the project, but must now embark on a mission to find alternative ways of securing the project. In a statement, shown below, HODVC boss Michael Carrick said, "We will continue negotiations with The Welsh Government, the local authorities and Aviva Investors to advance the development on revised terms that will be acceptable to all parties."

The statement from the Heads of The Valleys Development Company is below:


Michael Carrick, CEO, Heads of The Valleys Development Company commented on Edwina Hart's letter (dated 6th April) to Rt Hon Carwyn Jones regarding The Circuit of Wales project:

"We fully recognise and appreciate the support and commitment of The Welsh Government and the private sector partners over many years to get a project as complex as The Circuit of Wales to a point where construction is imminent.

"The Circuit of Wales is a significant mixed-industry development with the potential to deliver widespread regeneration benefits to the South Wales region. Many observers near to the site will have noted that the pre-enablement works and ecology activity has already commenced and we have a range of contractors engaged on creating sustainable employment opportunities in this challenged area.

"We respect and understand the Ministers decision on the support for a 100% guarantee for our private funding. While this was our clear preference and reflective of the negotiations we have held over the past six months, we accept that the project will need to progress on revised terms.

"We will continue negotiations with The Welsh Government, the local authorities and Aviva Investors to advance the development on revised terms that will be acceptable to all parties."

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Comments

I can't think of any viable reasons that the public should wholly and completly underwrite a private investment vehicle - particualry for a business as precarious as a motorsport venue.   

The 80% public offerring is still way over what it should be, Wales hasn't got it's problems to seek  and needs a black whole money pit on top of the current steel situation like a cavity in the cranium.  

Not being able to get your own investors to underwrite 20% of the value is pretty shocking for any project.   

 

They would underwrite it because it would save a community that's been economically decimated by the local industries being destroyed. Revitalising projects come in many forms and they have a tendancy to make more money in tax revenue than they cost over the long term. There are lots of reasons why a government should underwrite private enterprises that sustain local communities and there are lots of reasons not to.

 

The offfer of underwriting 80% of the project value from the public purse is a pretty reasonable result from the Welsh Assembly.  These guys are developers looking to make a profit whilst having everything stacked n thier favour (who wouldn't).   You have to question their backers belief in the project if they don't want to take a £70M risk on a £357M development.

New motorsports venues tend to loose lots of of money in the first couple of years, Rockingham was what, a £50M operational loss by the end of year two and sold for a nominal sum at that point.

It's a lot of money on the line here, the Olympics was a safe bet to underwrite centrally when you take inward investment and legacy into account, with only two major international events a year (F1 & MotoGP) with Motorsport as the core offer of an investment the developers have to believe the sums add up and they have to convince their backers of the same.

Looks like the backers have not been convinced to date.

Finally can you imagine the difference a £10M investment would make to Donnington or Knockhill?  Small change compared to the sums being talked about here.

 

Did Dorna actually receive a payment from this project?  I would assume so to have been given the rights.  Wonder how that is handled when the project is finally cancelled.  Besides Silverstone getting a great deal on the race sanctioning fee for another couple of years, that is.  I also wonder whose money it is that was used to purchase those rights.

On a separate note I find it a bit ridiculous that a private investor would demand 100% guarantee from the gov't.  In that case what are they actually offering?  No wonder someone would invest in a racing circuit in the middle of nowhere with questionable amounts of sunshine: it was not a risk to them at all!  And I find the gov't offer of an 80% guarantee still to be an egregious use of taxpayer funds but was not enough for the private equity people!  What balls!  Yet another case of taxpayers being asked to subsidize the risk but not sharing the profits.  I thought that only happened in the US?

Having this come out the same week as the Panama Papers really drives home how finance for the rich is nothing like that for the rest of us schmucks.

And 4000-6000 full time jobs?  That must have been calculated by the same people that set the income on all the subprime mortgage applications in the US.

Kudos to Edwina Hart.

 

Chris

I'm not really sure why a new track was needed.  That an insurance company refuses to underwrite it should ring alarm bells though, and I agree that the government were wise to step back from this.

With the debacle about land, and approvals, and now financing, I continue to wonder how COW ever got the contract - they had hardly more than a sketch on paper when it was awarded.

I'm guessing the Spanish builders that have been hired to build the track are called Ezpeleta & Sons.

Of an insurance company (a UK company) refusing to underwrite one of their own investment projects (a UK racetrack)!  I went to the aviva website and clicked on 'what we do' and the first thing that came up was 'We free people from fear of uncertainty.'  Paging Alanis Morissette...........

Chris

under EU law? What about the 45 billion the UK taxpayer paid to bail outs in the banking crisis? We read all the time that races in Spain are funded by local governments... seems like laws only apply to our politicians when it suits them.

Maybe the elected officals from the Welsh Government saw the attendace figure from WSBK, with the fact that riders holding a Britsh passport dominate the series.

If I were a member of prime ministers office this fact would have me worried. If only 10,000 show up for the Britsh round, how many would show up if they did not dominate the series?