Plans to develop a £400 million MotoGP standard circuit in South Wales appear to be in tatters after the Welsh Government announced it could not underwrite the proposed £357.5m private sector investment from Aviva Investors. The decision seems likely to leave the project needing to find new investment or be left dead in the water.
Welsh Business Minister Edwina Hart today revealed concerns about the viability of the scheme in a letter to First Minister Carwyn Jones, adding that she had "reluctantly come to the conclusion" not to proceed with the guarantee after receiving legal advice.
The letter continued: "The final official advice recommends that I should not agree to underwriting the £357.4m Aviva investment in the scheme for two reasons. First the significant question around the viability of the project and secondly the unacceptable risk to the Welsh Government of in effect underwriting the entire project.
"These two factors mean that there is both a significant value for money gap and a real legal challenge around issuing such a guarantee.
"It is important to remember that this project started as being one that would be fully funded by the private sector risk capital without the need for a government guarantee," the letter stated, before adding: "It is important that we keep the door open to any new investors who might be able to take this project forward".
Mrs Hart's letter also reveals that efforts to "share the risk" with local councils - thought to be Monmouthshire and Blaenau Gwent - also failed to materialise. This would have seen the councils provide a head lease, which would have seen HoDVC entering into a rental agreement with Aviva for the circuit.
Insurance firm Aviva has declined to comment on the decision.
Michael Carrick, the CEO of Heads of The Valleys Development Company which is behind the project, said he would continue to talk with the Welsh Government and Aviva to try and rescue a deal. An offer by the Welsh Government to underwrite 80% of the funding is said to have been discussed already but rejected by the investors.
"We respect and understand the minister's 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," Carrick said.
To date, the Welsh Government has provided early stage working capital to the tune of £9m and had already agreed to £16m of funding to support job creation if the circuit is built.
It's not clear where further investment may come from to save the project, which had until recently seemed set to begin construction work. Preparatory work and ecology activity has already taken place.
Heads of The Valleys Development Company has a contract to host the British round of the MotoGP championship until 2020 and struck a deal to lease Silverstone for last year's and the 2016 event, due to take place on September 4.