Kancoat investment decision wrong, senior civil servant says

James Price said the fact a site had failed did not mean it would fail again

The investment panel that recommended government cash support for a steel firm which later went bust got its decision wrong, a senior civil servant has admitted.

Kancoat in Swansea received £3.4m before going into administration.

That was despite a review advising it had a "weak" business plan.

But deputy permanent secretary for economy James Price told AMs that the panel had thought the firm had a "reasonable chance" of success.

The site at Waunarlwydd had been previously run by Alcoa Group, but was shut down in 2007.

Another firm, Falcon Steel, had received Welsh Government finance before entering liquidation in January 2011.

Mr Price told the assembly's public accounts committee on Monday that the Welsh Government's investment panel "was convinced" that Kancoat "had a reasonable chance of being successful".

"Simply because something has failed before doesn't always mean it's going to fail again," he said.

But, under further questioning from Swansea East AM Mike Hedges, Mr Price said: "In this case the investment panel was proved wrong."

An earlier Wales Audit Office report had shown that a Welsh Government due-diligence review had raised concerns about Kancoat's business plan, saying it appeared "weak and inconsistent" and identifying it as high risk.

The former Alcoa plant was sub-leased to Kancoat by Welsh ministers

But Mr Price told the committee it was not unusual for a due-diligence officer "to raise concerns and for us to still put money in".

Mick McGuire, director of sectors and business at the Welsh Government, said the business plan for the firm had, on paper, "looked credible and achievable".

But he said the company's business plan had come across major issues in "huge fluctuations in the availability and the cost" of steel.

Mr McGuire said the business failed because the company's ability to manage "unforeseen issues and fluctuations wasn't sufficient to keep it safe".

Mick McGuire (L) said the business plan had "looked credible"

The Welsh Conservatives have previously accused former economy minister Edwina Hart of breaking the ministerial code by approving support for a company close to her Gower constituency, although that was denied by First Minister Carwyn Jones.

Mr Price told the committee that he did not believe there was any "undue influence" from Mrs Hart on officials over Kancoat.

He did not believe she had "any involvement beyond the consideration of the paperwork" sent to her by officials.

Mr Price later said he could not "categorically" say she did not speak to staff about it, but would not have thought it to be "improper" if she had.

He added that no staff had raised "anything" with directors or him.

Mr Price said if an investment was to take place in a minister's constituency "then there would be deemed a reasonable conflict or perception of conflict might exist, in which case advice would be sought".

Often that would end up being referred to the first minister, he explained.

But he explained that in this case, "because the investment was outside of the minister's constituency area", such a process was not adopted because "there was deemed not to be a conflict of interest".

The Welsh Government had previously said it had made a number of "key changes" to its procedures in the wake of the collapse of the firm.

Mr Price said there was "now a vastly improved process" in the way loans were awarded.

Mr McGuire added there "has been interest" from a company in buying the production line.