CATALOGUE OF BLUNDERS OVER FILM STUDIO COST WALES MILLIONS
THE deal the Welsh Government signed to bring Pinewood Studios to Wales was blighted by a catalogue of errors.
It lacked detail, ignored potential conflicts of interest, and saw the Government spend £6m on a building which had a leaking roof without even carrying out a structural survey, according to a new report.
The Welsh Government spent £6.3m buying, and another £3.1m fitting out the former Energy Centre site at Wentloog, near Cardiff, to develop as a film and TV studio in collaboration with Pinewood Shepperton Limited in 2014.
But by January 2017 Pinewood had new owners and problems with the studio not being able to accommodate higher-budget film productions and the anticipated demand for the studio had not materialised, resulting in it being run at a loss to Pinewood.
In October 2017 the lease and collaboration agreement with Pinewood was ended.
The Welsh Government had entered into a contract described by the committee as “lacking clarity” in terms of how it would operate.
The Assembly’s public accounts committee, which has assessed the Welsh Government’s dealings with Pinewood, has said there was “inaccurate, incomplete and poor-quality advice provided to Welsh ministers on a number of occasions”.
Now, a new report has made clear the catalogue of errors which impacted on the deal.
When Welsh Government officials spoke to Pinewood about setting up the studio, they also created a £30m investment budget, to be made available over a period of five years for investment in film and TV development, production and distribution.
The fund was to be operated by Pinewood Film Advisors (Wales) Ltd on behalf of the Welsh Government.
The original business plan said the fund would generate £90m in Wales, but the Welsh Government has already admitted that it knew early on those estimates were “going to be difficult to achieve”.
In terms of the original target of £90 million, the Welsh Government has received just £18 million.
Welsh Government director-general for economy, skills and natural resources Andrew Slade had previously told the culture, Welsh language and communications committee that £15m of the funding associated with the media investment budget had been invested.
The Welsh Government has a quantified Welsh spend of just over £18 million, but that does not take into account money which will be recuperated from a number of productions, some of which have barely started production.
But Mr Slade admitted the final figure “won’t look like £90 million”.
Pinewood had also told the Welsh Government it would generate an annual revenue forecast of £714,000. So far, income generated is £472,000, “significantly below” Pinewood’s annual revenue projection.
The Welsh Government was to pay Pinewood £438,000 annually for five years to market and promote the studio and the media investment budget.
However, shortly after the contract was signed, officials realised that VAT had been left out of the original sponsorship agreement.
It meant approval had to be given to increase the annual sponsorship by £87,600 to £525,600.
The committee said: “It is difficult to comprehend how the VAT implications could not have been understood if specialist advice was received.
“We asked Welsh Government officials how the omission of VAT from the original sponsorship agreement came to light, and why it was not picked up as part of their due diligence prior to the signing of the legally binding Collaboration Agreement with Pinewood.”
The £87,600 of VAT could not be reclaimed and is an additional cost to the Welsh Government.
Before buying the building, the independent valuers said it “appeared to be in a generally reasonable state of repair” and “no urgent or significant defects or items of repair were noted”.
However, essential repairs to the leaking roof had to be carried out.
It emerged that the roof issues had not been identified as the Welsh Government did not conduct a full building survey, just a valuation.
AMs said they were “surprised” that a £6m property was not given a more comprehensive building survey “which we would expect”.
When asked, Tim Howard, deputy director of property for the Welsh Government, said that the Government had a good knowledge of the history of the building and that it was being sold by an institutional investor, which was “an indicator” that the building “had probably been maintained to a reasonable standard”.
When the committee asked if Pinewood would be footing some of the bill for the repairs, under the agreement for lease, responsibility lies with Welsh Government.
Welsh Government officials said Pinewood had given a commitment to improve the building once it became a tenant.
However, the Welsh Government did not know the value of works carried out by Pinewood.
“There was a lack of clarity in terms of who held responsibility for which improvements and that this led to incorrect advice being provided to the minister,” the committee found.
“It seems that the approach taken by the Welsh Government did not make adequate provisions administratively to ensure the contract was sufficiently explicit, which might well have secured much better value for money for the taxpayer.”
As part of the purchase, the Welsh Government also acquired a derelict Grade II-listed farmhouse, which is next to the main building and which the Government now has a statutory obligation to renovate – at an estimated cost of £360,000 (including VAT).
Until a tenant on the site wants to use the listed building, it will be left in its derelict state, and only sell, or repair it if they are forced to “make good” the building. However, the committee has pointed out “given the building is in the middle of an industrial estate with no amenities there is little likelihood of being able to sell it”.
The committee found: “We were surprised to learn that the Welsh Government were not aware of any requirement to make good the Grade II-listed property that it purchased as part of the site at Wentloog.
“We find it naive of the Welsh Government to anticipate this to be the responsibility of the local authority and are disappointed that there is no intention to work on the property unless required to do so by the local authority or Cadw.
“We believe the Welsh Government should have evaluated the assets and liabilities it was taking on as part of the purchase”.
Chairman of the Public Accounts Committee Nick Ramsay AM said: “The announcement of the arrival of Pinewood in Cardiff in 2014 was met with excitement and anticipation that the brand could bring an estimated £90m to the Welsh economy while boosting the Welsh film industry on an international level.
“We were surprised that the Welsh Government entered into a contract that lacked clarity in terms of operating arrangements, and a collaboration agreement that did not explicitly make clear the roles and responsibilities of each partner.
“It is essential that the Welsh Government learns from its past experiences and in responding to this report must demonstrate that lessons have been learned with regard to its approach to funding private business.”
The committee made eight recommendations including:
■ That all future negotiations between the Welsh Government and private-sector business include a rigorous assessment of each party’s responsibilities and these are set out explicitly in all contracts;
■ The Welsh Government should thoroughly overhaul its arrangements for identifying and assessing potential conflicts of interests and that these, together with robust mitigation proposals, be made explicitly clear in advice provided to ministers prior to entering agreements with privatesector business; and,
■ The Welsh Government obtain surveys, not just valuations, on all property acquisitions above £1m.
A Welsh Government spokesman said: “We have received the report and are considering its recommendations before responding in full.”