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| (Pic : BBC Wales) |
Whilst being Byron Davies MP's (Con, Gower) sole notable contribution as an AM, I also consider it a serious scandal, so much so I've give it its own tag - so you can read the back story, which stretches back to mid-2012, whenever you want.
The Committee made 18 recommendations, summarised as :
- The Welsh Government must ensure governance and oversight arrangements are "robust, clearly defined and understood by all parties involved". This should apply to all future "arms-length" bodies, and the Welsh Government should also ensure board members on such bodies have the appropriate expertise.
- The role of Welsh Government observers should be made more explicit, as there was evidence that the role wasn't properly understood, being "indicative of organisational cultural and behavioural problems".
- Procedures for transferring portfolio responsibilities between government departments should be strengthened accordingly; plus such portfolio transfers should be monitored by the successor committee in the Fifth Assembly.
- Welsh Government procurement procedures should be tightened up to prevent commercially sensitive information being revealed to the market.
- The Welsh Government, "as a matter of urgency", should address weaknesses in its organisational structure which has led to poor record-keeping.
- Any change from originally-agreed plans, which could adversely affect value for money, should be reported to the relevant government minister for their consideration.
- The Welsh Government should investigate whether they can sue Lambert Smith Hampton and Amber Infrastructure for : poor advice given to RIFW before the sale; breach of contract when acting for both Stanley Thomas' Guernsey-based South Wales Land Developments (SWLD) and RIFW at the same time. They should also consider referring Lambert Smith Hampton (LSH) to their professional bodies.
- The Welsh Government should inform the UK Government of a possible breach of EU state aid rules (RIFW was an EU-backed project).
RIFW : The Organisational Background
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| The goal of RIFW was to sell Welsh Government-owned land to raise funds for regeneration projects. Everyone agrees that, despite the risks, it should've worked. (Pic : Neath Port Talbot Council) |
The Auditor General (Part IV) concludes that the idea behind RIFW – that it would sell Welsh Government-owned property to raise funds for regeneration projects in the Welsh Wales & Valleys area – was innovative, but he believed the need to sell assets "became a distraction". It was accepted this was risky as board members were primarily there to deal with regeneration projects, not the sale of assets to raise funds. Some board members also didn't completely understand that RIFW was arms-length of government.
Because the board only had five members – two Welsh Government officials, a WLGA representative and two externally-appointed members – their "capacity to discharge its responsibilities was weakened" when a conflict of interest arose whereby one appointed member, Jonathan Geen, started to work on behalf of SWLD. He declined to give evidence to the committee.
Welsh Government departments were rearranged between July 2011 and January 2012, presumably because of the new Labour-only administration. RIFW was originally part of the Economy & Transport department but moved to Sustainable Futures, meaning civil servants who were familiar with RIFW and its work were no longer responsible.
In what could be a bombshell revelation, the report said as soon as Amber and Lambert Smith Hampton were appointed as advisers, information about the land was revealed to interested parties. Also, the resulting complex business arrangements between Amber, Lambert Smith Hampton and RIFW perplexed even the Auditor General.
The Committee believed that, as a concept, RIFW should've worked, but due to a lack of organisational capacity, board members were asked to do something that was beyond them, which meant mistakes were all the more easier to make in light of various conflicts of interests.
Welsh Government Oversight
A senior civil servant, Christopher Munday, attended meetings as a Welsh Government "observer". The Welsh Government admit weaknesses in oversight, which were revealed in an internal report, with Mr Munday's role being unclear – he believed he only had to report back on the transfer of assets.
Because the observer had worked with Amber to draft recommendations to the board with regard the sale, this was considered implicit Welsh Government support. He also confirmed he sat in at meetings and made comments – where he became gradually more aware that his role was wider than he'd assumed, with board members considering him a non-voting full member.
The Committee said he should've asked for clarity on his role, and the Welsh Government accept there was a "corporate failure" not to provide that clarity in the first place.
Asset Transfer & Sales Plans
The Welsh Government transferred the land to RIFW, with less-attractive land being included alongside more-attractive land within the portfolio.
Another civil servant, James Price, said the prevailing economic climate led to a "mind-set within the Welsh Government about a 'fire sale' of assets", with a discount of up to 50% mentioned. The potential for an increase in land values wasn't formally considered, but was recognised.
When the Welsh Government advertised for fund managers in 2012, they revealed the "hope values" of the land which subsequently weakened RIFW's negotiating position. The money raised was also going to be match-funded with an open timetable, so fund managers should've known that there was no "rush" to raise the money before 2015 – which is one of the excuses given for the quick sale.
No minutes were taken of several meetings, which the Welsh Government said was justifiable as they were "informal". The Committee believe the absence of a complete audit trail was "wholly unacceptable". They were also concerned and surprised that electronic diary entries for civil servants were deleted 12 months after an event.
The Portfolio Sale
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| The sale of a site at Brackla in Bridgend - now earmarked for housing - was particularly protracted. |
It was for the RIFW board to decide any changes to the agreed plan.
An interest was put forward by "a party" to acquire the whole portfolio – presumably SWLD (named in the report as GST Investments) – and the agents continued discussions with them as well as Cardiff-based Rightacres, who also declared their interest in buying the land. In turn, the board were told that market conditions were poor, in decline and there was a risk some of the land would be worth less in future.
Amber wanted to continue the agreed plan to sell the sites gradually over time, but Lambert Smith Hampton recommended selling them as a single package. The board agreed, but witnesses denied this was a "snap decision", saying negotiations were extensive and lasted from April 2011 to February 2012 (when contracts were exchanged).
Amber were unambiguous in their belief that the Welsh Government knew, and approved of, the sale – but the Committee said any decision of that magnitude should've directly involved ministers.
The sale wasn't without problems. There were issues with titles and other assorted delays – particularly at Brackla in Bridgend. Langley Davies told the Committee the titles "weren't in a tidy state at all", which the Welsh Government blamed on changes to registration requirements.
A price of £21.75million was agreed with SWLD for the entire portfolio (Rightacres offered £17.5million plus clawbacks) – which was a reduction on an original £23million offer. It's believed, as mentioned, that the "double dip" recession at the time prompted a quick sale instead of trying to get the best deal.
The Role of the Advisors
Amber led the negotiations with SWLD, and presented its recommendations to the RIFW board which included clawback agreements; however, changes in clawback agreements weren't reported to the board. Amber also failed to pass on an updated valuation of the portfolio to board members – which the Committee describes as a "fundamental weakness".
Lambert Smith Hampton were tasked with preparing a plan for the assets. They undertook no formal marketing of the sites once the £23million offer was tabled by SWLD, nor after the offer from Rightacres.
The Committee questioned how Langley Davies/SWLD became aware of the asset portfolio despite Lambert Smith Hampton not undertaking any marketing? LSH said Langley Davies approached them because he owns buildings next to some of the sites.
Lambert Smith Hampton worked with Langley Davies on other projects, but they agreed to act as managing agents for SWLD once the sale was agreed. This isn't said to be unusual in commercial property, but it happened before the delayed Brackla sale went through. In the end it meant LSH were acting for both the seller and buyer which is, patently, a conflict of interest.
The Auditor General added that not all expressions of interest were communicated to the RIFW board – in particular one from Legat Owen to develop a care home at a site in north Wales.
How much has this cost?
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| The Lisvane site was sold for just £1.8million, but was valued by SWLD at £39million. (Pic : Wales Online) |
The Welsh Government couldn't guarantee that value for money was achieved from the sale. Plus, only two sites had clawback agreements – Lisvane and Monmouth.
The Committee decided to focus on what SWLD sold the land on for to get assess what this might've cost RIFW. To date, SWLD have made £19.2million profit on land they've sold or part-sold – and they still hold some of the more lucrative land. Also, a site in Rhoose was bought for £3million and sold for £12.5million with no clawback agreement in place.
Returning to Lisvane, it's been a candidate site for housing in Cardiff's Local Development Plan for several years and anyone with half a brain realises Cardiff's housing needs aren't going to be met through brownfield development alone.
RIFW sold the 120 acres of land at Lisvane for £15,000 an acre, or £1.8million in total. Savils, acting for SWLD, said the 72 acres of developable land was worth up to £2million an acre (£144million), while SWLD proposed a housing development viability model which valued the site at £39million.
Maths isn't my strong point, but based on SWLD profits from land sales to date, and the potential value of the Lisvane site alone, you're looking at RIFW/Welsh Government missing out on ~£56.4million that would've been raised had the land been sold on the open market.
There's more good news. The deal was so bad for RIFW/Welsh Government that it might constitute unlawful state aid to property developers in contravention of EU directives – mainly down to the lack of open marketing and no independent valuations.
A Comedy of Errors
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| After millions of pounds, countless investigations, denials and counter-denials, RIFW's legacy is a car park in Neath. (Pic : Neath Port Talbot Council) |
As the majority of the people reading this will be aware, in a desperate attempt to push Welsh politics to the forefront of the public's imagination, S4C are currently showing an unintentionally funny and slightly pretentious political drama/soap called Byw Celwydd.
The reality of Welsh politics is different of course, and while going through the report another political show came to mind : The Thick of It.
Despite taxpayers not actually losing anything in real terms, this is easily the worst scandal involving public money since devolution. If this were Whitehall, someone senior in the civil service would be getting a well-deserved P45 for their incompetence and it would warrant a ministerial resignation or two.
It sends the wrong message to the public when senior officials or cabinet members can get away with "losing" this amount of money. It also underlines a defensive and lazy culture in the civil service, which started to show itself during the AWEMA scandal and the Green Investment Bank bid - which are small fry compared to this. It's probably worth mentioning the other dropped bollock revealed today, with the Welsh Government being swizzled when they bought Cardiff Airport - which even I pointed out at the time was probably the case. My back-of-a-fag-packet valuation of "half to two-thirds of" £52million was scarily accurate.
As the scandal crosses several departments and several ministers - due to cabinet reshuffles - you can't pinpoint this on a single person. The RIFW board were simply out of their depth, and that's always a risk when you try and run things by committee, while it was a collective failure by the Welsh Government; Amber and Lambert Smith Hampton can probably expect a visit from Welsh Government lawyers too.
Dodgy offshore issues aside, SWLD are largely blameless and I bet they can't believe their luck. The likes of Stanley Thomas don't become rich by being generous to fools who show their hand. As a business decision, you've got to consider it a masterstroke.
Just to underline how bad this is, the First Minister issued a rare apology during First Minister's Questions yesterday, while the Welsh Government (cynically) announced £16.5million towards regeneration schemes at the same time the report was published. They only do that when they know they've f**ked up and have nowhere to hide.
RIFW has been mostly superseded by Vibrant and Viable Places. However, despite the mealy-mouthed statement from Communities & Tackling Poverty Minister, Lesley Griffiths (Lab, Wrexham), this scandal has one last chapter – a debate on the report which I hope will happen before the Assembly dissolves for the election, but I'm not counting on it. This scandal means regeneration projects that are currently underway in Neath, Bridgend, Pontypridd, Porthcawl and other towns in the Objective One area could've had a lot more capital behind them and could've been a lot bigger and bolder. So in addition to the "loss" to the public purse, the wider economic cost of this failure is likely to be significant and will probably run into tens of millions of pounds by itself.
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