A multi-million pounds deal to boost the Welsh film and tv production industry turned into a catalogue of errors after the Welsh Government signed a contract which lacked detail, ignored potential conflicts of interest, and bought a building with a leaking roof without carrying out a structural survey.
The National Assembly's Public Accounts Committee has been looking at the Welsh Government's relationship with Pinewood Studios and the £30 million Media Investment Budget the studio was charged with managing.
When it announced the fund, the Welsh Government claimed it could make as much as £90 million for the Welsh economy in the long term. However, the Committee found that early returns and forecasts failed to meet those targets, although it accepted it could be some time before the benefits were fully realised.
Committee members learned that stakeholders were concerned about Pinewood's role in managing the fund. It also heard there was a potential conflict of interest as Pinewood was effectively in charge of awarding money to its rivals.
The Auditor General for Wales said:
"There was a perceived lack of transparency regarding the extent of wider Pinewood Group involvement in productions. This perceived lack of transparency had exacerbated concerns about the financial advantage Pinewood may have had over other companies through its exclusive access to the Media Investment Budget."
The Committee discovered an error in the sponsorship arrangement between the Welsh Government and Pinewood. The agreement meant the government would pay Pinewood £483,000 per year to market and promote the studio in Wales. However, the agreement did not include VAT which cost a further £87,600 per year, meaning Pinewood would be paid £2.63 million over five years.
The purchase of a building for the new Pinewood studios also raised concerns. The Welsh Government invested £6 million pounds in the former Energy Centre at Wentloog near Cardiff without commissioning its own structural survey. Had it done so, it would have realised the site came with a wind turbine and a grade 2 listed farmhouse which, under the terms of the purchase, needed restoring. In addition, the roof of the main building leaked which meant the Welsh Government needed to pay to have it repaired.
In 2017 Pinewood relinquished its lease of the Wentloog studios and ceased to have any involvement in the Media Investment Budget. The Welsh Government and Pinewood entered into a new "Management Services Agreement" on 1 November 2017 for the operation of the Wentloog studio facilities.
"Pinewood is a long established world renowned British film studio associated with some of the most famous film franchises in history," said Nick Ramsay AM, Chair of the Public Accounts Committee.
"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.
"We were equally surprised that the Welsh Government chose to purchase a site that consisted of three very different and unusual assets, costing £6 million, and failed to commission a full structural survey beforehand.
"It is essential that the Welsh Government learns from its past experiences and in responding to this report must demonstrate categorically, once and for all, that lessons have been learned with regard to its approach to funding private business."
The Committee makes eight recommendations in its report, 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;
that 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 private sector business; and,
the Welsh Government obtain surveys, not just valuations, on all property acquisitions above £1 million.
The report will now be considered by the Welsh Government.
Read the full report:
Public Accounts Committee Report - The Welsh Government’s relationship with Pinewood (PDF, 571 KB)