'High risk' Swansea firm failed with £3m of public money
A Swansea steel-coating company went bust after receiving more than £3m from Welsh ministers, the public spending watchdog has said.
The Welsh Government backed Kancoat despite being advised it was a "high risk" venture with a "weak and inconsistent business plan".
The Wales Audit Office (WAO) said Kancoat owes the government £2.6m.
Ministers said key procedural changes were made after the "complex case".
The firm was previously turned down by the government's investment arm Finance Wales due to "unacceptably high" risk.
Kancoat was set up to coat metal strip used to make food cans and other products and was based at the former Alcoa factory in Waunarlwydd.
It had failed to attract private financial backing and asked the government for support.
It was given a mix of loans and financial support by the Welsh Government between May 2012 and February 2014.
Kancoat created 12 jobs but ran into difficulties when it struggled to maintain its supply of steel.
A separate report by administrator Gary Stones found Kancoat was seen as a threat to two steel producers, one of which was an envisaged supplier.
It went into administration in September 2014.
The WAO found:
- The cost per job of the Welsh Government investment ended up being three times higher than hoped at £65,700 rather than £23,891
- In April 2013 Finance Wales turned down Kancoat's application for £325,000 of investment on the grounds it represented an "unacceptably high level of risk"
- The Welsh Government's own financial due-diligence reviewer raised concerns about Kancoat's financial projections
- The review said Kancoat's business plan "appears weak and inconsistent" and the project was identified as high risk
- Welsh Government officials told auditors if the Kancoat application were received now, they thought it "very unlikely that such an application would be successful"
The auditor said the Welsh Government had changed several procedures since so "loan applicants are more robustly assessed".
If the coating line were to be sold, the auditor estimated it could raise about £1.25m for the Welsh Government.
Plaid Cymru shadow economy secretary Adam Price said a "root and branch" review of the Welsh Government's business support division was now needed.
Conservative Russell George said the £3.4m investment was a "spectacular failure and lessons must now be learnt".
A Welsh Government spokeswoman said: "Our decision to provide business loans to Kancoat was based on projections that our support would help create more than 30 jobs over three years.
"Due to a number of factors, the actual project created 12 new jobs and this in turn significantly increased the 'cost per job'.
"This was a complex case, as the WAO report recognises.
"As part of our commitment to continuous improvement, we regularly review our procedures and since this case we have implemented a number of key changes."