The Welsh Pipeline

Jeremy Williams, of Capital Law, analyses the Welsh political and economic landscape and asks what it will take to get several key multi-billion-pound infrastructure projects off the ground.

20th October 2016

Wales has a pipeline of major infrastructure projects in a variety of sectors that need to be progressed if it is to acquire and retain a competitive edge in today’s global economy.

Some schemes have been in the offing for years (or even decades), most suffering from a lack of funding and lack of political will to promote projects with a lifespan from inception to completion that extends beyond a five-year political term. The Welsh Government’s Wales Infrastructure Investment Plan provides details of the planned infrastructure projects, but implementation and delivery are now key for the development of the Welsh economy.

Take, for example, the M4 relief road: plans for the proposed motorway south of Newport originated back in the early 1990s and (subject to a public inquiry) is finally moving forward. The M4 is the backbone of the Welsh economy and will be the Welsh government’s biggest infrastructure project to date, so is critical to economic growth.

The Cardiff Capital Region (CCR) City Deal is another exciting initiative that will act as a catalyst for economic growth and infrastructure development. It includes projects such as the £2bn South Wales Metro, which is a proposed integration of heavy rail with the development of light rail and bus-related transport services in south east Wales around Cardiff.

The CCR City Deal is an agreement between the UK government, the Welsh government and the 10 local authorities which make up the CCR, and includes £1.2bn of investment in the CCR’s infrastructure through the establishment of a 20-year investment fund. The deal was signed on 15 March 2016 and includes a commitment of £500m from the UK government, £503m from the Welsh Government, £120m in capital borrowing from the 10 local authorities and a £106m contribution towards the metro from the EU’s Regional Development Fund. Furthermore, the CCR City Deal aims to attract £4bn of additional private sector investment to create 25,000 new jobs and increase the region’s GVA by at least 5% over the investment period.

Major projects in other parts of Wales, including the Swansea Bay Tidal Lagoon and the Horizon Nuclear Wylfa Newydd nuclear plant in Anglesey, are working their way through a myriad political, economic and environmental factors that inevitably must be overcome in infrastructure projects on this scale.

And in the political arena change is afoot to ease the path forward for major projects. More powers are now being devolved to Cardiff from Westminster, which means that we are now capable of producing our own legislation. Examples include the Planning (Wales) Act 2015, which is set to simplify and quicken the planning process for “Developments of National Significance”.

Another potential piece of vital legislation is the Wales Bill 2016-17 which will devolve extensive powers to Welsh ministers regarding the licencing of onshore oil and gas (including fracking) projects, all onshore wind projects, and renewable energy projects under 350 MW that are developed in the Wales inshore and offshore regions.

However, while these legislative changes give Wales greater power, it is the Well-Being of Future Generations (Wales) Act 2015 that will have an interesting impact on prospective long-term projects. This obliges public bodies to put “sustainable development” at the heart of decision making.

All of this sounds exciting but naturally these projects depend on funding, which of course takes us to the inevitable Brexit debate. There is no avoiding the fact that European funding is a vital source of funds for Welsh infrastructure projects. For example, the A55 and A40 road improvement works, along with the South Wales Metro, rely on a combined £191m of European funding. However, the funding is probably not lost.

The works are scheduled to complete by 2019, with funding being sought prior to commencement of works during 2017. The UK remains a full member of the EU until Article 50 is invoked, which triggers a minimum period of two years to negotiate the terms of exit. Therefore, it is likely that funding for these projects will be sought while the UK is still a full member of the EU.

Even if EU funding is not available, it only accounts for 13% of the total funding. The funding models for these projects have always been based on a broad-spectrum approach where finance will come from sources including Westminster, local government and investment partners.

In fact, the first minister has been using the Brexit debate to lobby assurances of funding levels to be provided by Westminster. The prospect of losing EU funds has shown the strength of the CCR City Deal’s broad approach to funding.

In Wales, the political will is there to drive our infrastructure projects forwards – the challenge is to unlock new sources of funding.