'Lessons learnt' from LG failure

Only around half of the promised jobs materialised

A report into one of Wales' biggest inward investment projects, which cost the taxpayer £60m, has said lessons must be learnt from its failure.

The LG developments in Newport should have led to 6,000 jobs but created less than half of those, despite a £131m investment by Welsh public bodies.

The Wales Audit Office report said state aid, much of it paid upfront, was not monitored closely enough.

But it praised the Welsh bodies for clawing back £71m of the investment.

Gillian Body, from the Wales Audit Office, said much of the work to bring the LG plant to south Wales had been done well.

She added: "We certainly found they did lots of things right. The due diligence work was done well, but nonetheless, in order to secure such a huge amount of inward investment, there were perhaps compromises that were made."

The Auditor General for Wales, Jeremy Coleman, said lessons could be learned to improve clarity and manage risks when awarding future aid after the failure of the Korean electronics company, which closed its doors in January.

MANAGING STATE AID Be as open as possible with the recipient on state aid issues, unless there are compelling reasons otherwise "Substantiate and document fully" investment figures to the EU Grant agreements to have suitable conditions for withholding and recovering grants before the completion of a project Source: Wales Audit Office recommendations

In 1996, LG said it would invest £1.7bn ($2.75bn) in the Newport plant and promised to create some 6,000 jobs, including 1,500 in the semi-conductor business.

At its height, only around 3,000 LG jobs materialised.

At the announcement of the closure of the final LG factory on the site last year, the company blamed falling prices and rising costs of producing computer monitors.

The auditor's report said that at one stage the public sponsors, including the Welsh Office - later the Welsh Assembly Government - and the Welsh Development Agency, did not know what was being spent overall.

'Significant loss'

Mr Coleman also found much of the aid provided was paid in the early stages of the projects creating a major risk for the authorities.

"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," said Mr Coleman.

"Recovery plans and legal agreements [should be] tightened to safeguard significant loss to taxpayers in the event that projects fail, as was ultimately the case with LG."

But the Welsh authorities did obtain a good settlement in "difficult circumstances" when the LG developments subsequently collapsed, said the report.

Recovery provisions were sufficient to claw back £71m from the companies - representing 54% of the aid provided.

The remaining £60m represented the jobs created by the projects until they faltered, and the lasting benefit of the infrastructure at the site, the report said.