Economy, Energy and Connectivity Committee

Good morning, colleagues and Members, and welcome to this meeting of the Economy, Energy and Connectivity Committee today in the Senedd. This is a public meeting. It is being broadcast live on Senedd.tv, and it is a bilingual meeting, so you're welcome to use whatever language you would like to use. There are no apologies today. Welcome to Benjamin, who is substituting for another Member here today. And a special welcome as well to Simon and Debra in relation to the Global Centre of Rail Excellence, which is the focus of our meeting today. Would you like to introduce yourselves?

Diolch yn fawr iawn. I'm Debra Williams, and I'm the chair of GCRE. A little bit of a background in me, if I may, Chair. I've spent about three decades actually in business, previously as the global vice-president at NCR. I led teams across 30 different countries introducing Teradata and the power of data, data warehousing. Closer to home, I am probably best known for some disruptive markets. I helped to launch Confused.com here in Cardiff, a business that, alongside its competitors, helped to build a very distinctive new financial services sector here in Wales that's been very popular and has created an economic strength and investment opportunity in Wales. And that's the experience that's brought me to be chair of this initiative.

We have faced challenges at GCRE, particularly in securing the private funding, and I'm sure we'll talk about that a bit more during this session. The challenge really has been the ability to move the project to construction, and we welcome the opportunity to discuss that in a bit more detail.

If I may, I'll just make three very quick points. My business experience has taught me the difference between an exciting idea and a credible commercial opportunity. GCRE is firmly in the latter category, I'm pleased to say. It offers the chance not only to create infrastructure that's unique to Europe here in Wales, but as we did with Confused.com, build a new and distinctive cluster of economic strength in our economy, and to do so in a place that badly needs those new jobs and skills, just 15 miles from the Tata steelworks.

Secondly, the business has taught me that unique major projects like these are challenging to deliver, but you don't give up at the first hurdle. You really do need to be quite tenacious with these. And securing private finance for GCRE has been challenging, but we've adapted our strategy. We've brought forward the site's energy and data centre opportunities, and in turn, we've been able to strengthen the investment case on the rail part of the project.

And lastly, I was commissioned by Government to develop a viable and credible way forward for GCRE along with the team, and I believe that that route now has been delivered. A blue-chip investor is very interested and a very real proposition is on the table in developing energy and data centre infrastructure on the site. And subject to the right conditions, they are willing to fund the railway. But a decision is needed by the turn of the year, which is rather important. So, we are under no illusion that the deal is done, and there will be challenges going ahead.

And no doubt we'll come back to that. Diolch yn fawr. Simon.

Morning, everybody. Thanks for inviting me. I'm Simon Jones. I'm the chief executive of GCRE. Prior to this, I spent 25 years as an engineering consultant, working for various engineering consultancy firms, and then more recently I was an official in Welsh Government. I was responsible for transport and economic infrastructure, so superfast broadband roll-out, the establishment of Transport for Wales, and the rescue operation that we had to do on the buses during COVID. So, all of those things were things that I worked on in my time in Welsh Government, and now I've been doing this for the last five years.

Thank you very much. I should have asked if there are any declarations of interest.

Any declarations of interest to be made today? Shav.

My declaration of interest is that I know Simon from my previous role as general secretary of the Wales Trades Union Congress.

Diolch yn fawr. Thank you.

Therefore, we'll move forward to start the discussion and examination. Of course, what we want today is the substance and to get to the heart of things, really, and to get the full picture. But in the first instance, could you tell us where the idea of having the GCRE came from?

For sure. So, I suppose this occurred back in 2017, 2018, when I was working in that transport job that I described, working with Ministers and other officials on the Wales and borders franchise, which was a huge procurement, probably the biggest procurement we'd done as a Government, and we were talking to lots of multinational railway organisations about operating the railway. And the rolling stock manufacturers in particular kept saying, 'Well, we can supply any trains you need for Wales, but our big challenge is that we've got nowhere to test them in the UK. We have to take all of our trains to the Czech Republic to be able to test them.'

At the same time, Ministers were thinking about how could economic development be done in a way that potentially would be more sticky for the economy. So, the sort of historic approach of providing grants to businesses or building small industrial units, that had have been the approach that the Government had been taking for many years. What Ministers were looking for was to create infrastructure, if you like, or facilities, that businesses would want to come to Wales to be able to use. So, to an extent, that was being done up in Broughton, around Airbus and the aviation industry, and around the semiconductor cluster in south-east Wales, and Ministers were looking for other attractors to be able to draw in business. And it became clear, from speaking to lots of different industrial partners—and we set up working groups and goodness knows whatever else—that, actually, there was quite a big opportunity in the railway industry to create an asset that would draw in businesses from, not just the UK, but from around the world, to either undertake short task and finish activities or to put down roots around a testing facility. And I suppose one of the things that gave us particular comfort in that area was looking at what's happened in the automotive industry.

So, there are three major automotive test centres in the UK, at places like Silverstone, MIRA up in Nuneaton in the west midlands, and in Bedfordshire there's a place, Millbrook. All those places are now essentially property developments. So, when you go to those places, you'll see their clients have set down roots at those facilities because they want to have immediate access to the testing facilities that are just outside the door. If I take the example of MIRA, for instance, that was—. There are about 1,000 people employed on that site at the moment. It generates about £0.5 billion a year for the economy of that area. They've just, in the last two or three years, put in a planning application to create employment premises for a further 2,500 people there. So, there's a kind of lesson from another industry of creating a testing facility that's not available anywhere else that people want to be near. So, that was the spark, if you like, for GCRE.

And then, as Government, there were various business cases commissioned. So, there was an outlying business case that was produced inside Government back in 2019, 2020; a 200-page document. In parallel, the UK Government produced its own separate outlying business case, and both of those triggered the investments that the Governments made in 2021. So, the UK Government went first, Rishi Sunak announced a package of funding for GCRE, and then, a few weeks later, the Welsh Government announced a package of funding for it.

Okay. Diolch yn fawr. Thank you. We'll have to be succinct because we haven't got a lot of time. Just one follow-on from that. In 2017, the Minister, Ken Skates, told the Welsh Government and the Senedd that the total cost would be £100 million. In May 2019, £100 million was still being quoted as the total capital cost; by October 2022, on the anniversary of announcing the acquisition of the site, that had gone up to £250 million. By 31 January 2023, GCRE itself was talking about a £400 million total capital cost. Now it's saying £400 million, but only for the rail track area, not the research and development centre, education, conference, hotel, et cetera. Bearing in mind the huge increase in capital costs in recent times and inflation, what now is the total capital investment needed and the gap between that and the £70 million that's already been had from the public purse?

So, it is just under £400 million to deliver the railway, the train shed, the operational facilities. That's the scope that has always been in there. So, the technology park and the hotel have always sat outside that scope anyway.

In 2017, that number that was produced was—. There had been no design work done at that point. That was an estimate based on not very much information. Over time, as we've been able to do more design work, we've been able to evolve what the costs would be. But, of course, in that time, there have been huge external shocks to the cost of construction—you know, external things like COVID and Ukraine and the cost of money through the interest rate increases, et cetera. So, all of those have had a bearing on this. At the same time, we've been developing the scope of what we need and what our clients actually want on the site as well. That's an important part of the design development process.

Okay. Thank you. Tom.

Thanks, Chair. I'll try and keep it succinct to a couple of key questions, then. First of all, thanks, both, for coming along. Just to pick up on what the Chair was just talking about, you're now talking about £400 million. You say there's still more work to do. Do you have a figure of what it would take to get you from where you are now to the site being financially viable? Do you have the figure?

Yes, we do. So, the total cost will be £400 million. Sorry, it's about £380 million, I should say, is the estimated cost. That cost includes some substantial contingency sums to be able to give us some insulation against cost shocks and increases. But, over time, if we're still here in three, four, five years' time—I'm not sure that we'll all be, but if we were—that number would have increased.

So, that's £380 million to get it to the point where you're completely financially sustainable without any—?

Yes.

Okay. That's useful to know. Thank you. In a previous session, we were told that there were some 200 endorsements made of yourselves, but none of those endorsements turned into cash, basically. I'm happy to be put right on this, but through my research, I believe I found out that the University of Birmingham secured funding from Research England, back in 2023—

It did.

—for £15 million to develop a permanent UK rail research and innovation network facility on your site, but the grant money was never drawn down. What happened there? Should we read into that, that it's concerning that Research England was not willing to allow that grant to go ahead on your site? What happened to that £15 million?

Okay. I guess there are a couple of points there, there's the £15 million, but the wider point about why it wouldn't turn anything into money. Let's deal with the £15 million. That was contingent on there being a railway for the research activities to take place, and Research England weren't prepared to speculatively build a research facility without the confidence that the railway itself was going to be built. So, that's the only thing to read into it. Had we built the railway, the money could have been drawn down, but because the railway wasn't there, they didn't want us to draw the money down.

Sure. But I suppose the point that I'm trying to get to is that Research England is not confident that the business plan and the plans that you guys have will result in a railway being built.

No, I wouldn't characterise it like that. So, the condition of the grant was that the railway had to have been committed to. So, there had to be funding in place and construction contracts awarded, before that money could be drawn down. That's not where we were then, and that's not where we are now. So, we would not have met the grant condition.

Right. Okay.

They didn't want to create a stranded asset, I suppose, is the summary.

Yes. And I appreciate what you're saying. It just raises a little flag for me that you weren't able to transform those 200 endorsements into any financial backing, and then, when Research England was willing to put £15 million, they then seemed to turn around and actually change their minds and say they weren't ready to do it at that point, given the condition of the site. Three years, nearly four years later, we're still no closer to being able to give that reassurance to Research England—

So, if it's okay, I'll just talk about the 200 things for a minute. And I think the two are separate, the Research England grant and the position of the fixed order. So, this thing is going to take another two or three years of development time, once we get the green light, and then probably three years to build it, so six years before this thing is operational. So, if you're a customer that wants to be able to place an order to test your train, you've got to be confident that—. When you place your order, you've got to be comfortable that you're going to wait for six years before the testing slot is available to you, and you've also got to be confident that the thing is actually going to be there in six years' time. Given that we've been at this for a while, it's really hard for people to be confident—'I put an order on GCRE now, and I know that it's going to be open in six years.' Because they've got a choice, haven't they? They've either got to try to book in in advance into one of these heavily oversubscribed test facilities in Europe, or go with us. If they go with us and we're not ready, they've got a train they can't test.

So, we're in a position where our clients cannot sign up with us until they have confidence that the railway is going to be built. I think that's understandable why they're there, but we've got this—. So, we've got this chicken-and-egg situation: external funders for the railway are saying, 'You need to have committed orders', and customers are saying, 'Well, we can't give you committed orders until we've got that external funding in place.' That cycle has to be broken, otherwise we're not going to be able to move this forward.

Thank you.

Shav.

It sounds like the figures are getting bigger and bigger as time goes on. You can see some concerned faces around the table here. We've been asking some of these questions of previous panels as well. But can you give us an update in relation to the data centre? What sort of progress is now being made around appointing an energy and data centre partner specifically, and do you think that we're going to have that partner in place by the end of 2026? Because you've talked about a chicken-and-egg situation and people wanting to know that there are other players in the room as well and that they are genuinely committed. From a workforce perspective, of course, we are going to want to be able to tell the Welsh population that there are going to be jobs coming. Tata Steel has been mentioned as one, but also, of course, in terms of the rail unions, they're asking as well, 'Are there opportunities here?' All of these things seem really interdependent. But what is the update in terms of the energy and data centre?

Okay. Can I just backtrack a little bit on why a rail company is trying to build a data centre on the site? So, it had always been our intention to have energy assets on the site, because we've long wanted the railway to be able to operate at net zero for efficiency reasons, but also that's the direction of travel that the railways nationally are going in. But we were never going to become energy developers as well as railway developers, so the intention always was to bring in an energy partner. There was also always a property dimension to our business plan as well. I mentioned the hotel and the business park, and all those kinds of things, in a previous answer. What's happened, though, over the last few years, is we've had a number of requests from third parties to explore whether they could develop data centre capability on our site. So, the reason that people are interested in our site is because it's huge, it's got huge power supplies—we've got National Grid lines running across the site—and there's really strong fibre connectivity, just by chance, that's running past our site. So, the site is attractive for data centre developers.

We recognised early on that the amount of money that people are spending on developing data centres might actually provide the key to unlocking some of the problems that we've had with the railway. So, we've been talking to a developer, who's going to spend billions of pounds on this site. The key thing about that is that there'll be some funding that will come from a land transaction, because we'll sell land to that partner, but, more interestingly, that will also produce a really significant non-domestic rates, business rates receipt every year. So, that's all new money that doesn't currently exist.

Is that going to be completely the private investor or are you going to be also then needing to draw down money from Welsh Government and, of course, the UK Government with the national wealth fund?

So, what we are—. The proposal that we're putting to Government is that we can get the railway built without putting any further Welsh Government budget into the railway. So there's no call on budget if we can make use of the non-domestic rates to be able to provide a guarantee to the investor that they will be able to get their money back if they put their money into the railway. The challenge that we've had with private investors is twofold. Sorry to go back, and I will come back to your question. One is the capital cost. You've rightly highlighted that the costs have moved around. No-one wants to invest without knowing exactly how much money they're going to be on the hook for, and we can't get to that point without doing further development work. So, we need to have a detailed design that says, 'At this point, there's going to be this big a steel column, and it's going to cost that much to build, and we need 300 of those things', and then be able to work from the bottom up to give us a fixed price for delivering the railway. So, that's No. 1. No-one will invest without knowing how much it's going to cost.

No. 2 is: this is a completely new business model. There isn't a thing like this, of this scale, that's been developed in the UK. So it's not like a windfarm, where a developer can go and say, 'Well, I know how much that's going to cost to build over there'—

So, is that why it's taking so long, then?

It is, yes. Because there are these two risks, and they cannot be managed by the private sector. So, we've been saying to Government for the last three years that there needs to be some kind of intervention to help both with the capital cost—fixing the price of this thing—but also giving comfort that the revenues that this thing will generate will be in line with the business plan. So, normally—. Sorry—elsewhere, Government provides things like guarantees. So, in the energy industry, Government provides guarantees, contracts for difference, to allow people to invest so they know the minimum amount of money they're going to be getting. That's essentially what we're saying needs to happen here. There needs to be some form of guarantee in place. And what we're saying about the business rates is the business rates can form the basis for that guarantee.

So, the railway can stand as its own commercial self now, or is it dependent on the data centre? It sounds like you're going to need—

Our business plan shows that the railway will wash its face commercially. But investors don't have confidence that it will do that, because there's no reference model for that. So, they need the comfort of a fallback, a safety net, which the business rates could provide. They may never get called, but they would be there as a comfort. So, just to be absolutely clear, the railway cannot proceed without the data centre.

Okay.

Alun, then Tom.

I've got a question before I ask further questions on your efforts to secure private investment. You've talked about a chicken-and-egg situation. I'm assuming, then, that you foresaw that in your business plan, and you factored in the things that needed to be done first and the things that needed to be done after all. Or are you now saying that that is something that you now understand?

I think we've understood that for the last three years. So, that wasn't what—. When the project was kicked off in 2021, we hadn't done the market analysis. We hadn't had the detailed conversations with potential investors. We ran a procurement-type exercise, an open exercise, to talk to the market in the first half of 2023 and the feedback was, 'We'll invest. We think this is a great project, but we need a fixed price for this thing to happen and we need some form of guarantee on the revenue.'

You've indicated that there is a blue-chip investor, one investor, that is interested in energy and rail. Can you give us some indication of what other discussions you've had with investors? And the second question: are you sufficiently clear with investors in terms of what their role is in the development? Some of the information that we've had back is that maybe that isn't as clear in terms of the proposition to investors.

Okay. We've spoken to dozens of organisations about investing in this. We did a market analysis exercise last summer, actually, looking at equity investors and debt investors, and the message that came back was the one that I've just been describing. This is something that people want to invest in, but they need the comfort of knowing what it's going to cost at the outset, so that risk can be kept off, but they also need the comfort to know that if the financials don't perform in line with the model, there will be some kind of fallback mechanism. These would be high-street banks, investment banks, investment houses and infrastructure investment organisations. Quite a wide range of organisations we've spoken to have given us that message.

And I'm guessing that you're clear, then, in terms of the role for investors now. So, can you outline what that role is? Is it part of a consortium? Are they delivery partners? Are they contractor and financier? Give us an example, or give us your view, in terms of where you think that investment is likely to come.

So, I think it will be a funding partner, rather than a delivery partner. That seems to be the way that the market wants to go on this. So, we would look to bring in private capital backed off by some form of guarantee, and then either that private firm, or we would appoint delivery organisations to build it, and potentially to operate it as well.

Just quickly on the data centre issue there, if they are supposed to be the saviours, potentially, coming over the hill, how much of the site do you envisage being sold off to them and how much money would that release? But also, perhaps, in terms of rates offset, how much per annum do you envisage those rates to be?

The amount of land that they will require was subject to a tender exercise. So, they've identified the amount of land that's needed. We're still in a preferred bidder stage, so it's probably better that I don't go into what their bid was at this stage. I think, once we've come out at the other end of that, all that information will be in the public domain. There will be a substantial capital receipt from selling that land that is not a million miles away from the amount of money that's been spent by Government. Again, I can't be precise on that at this stage for understandable reasons, hopefully.

The business rates are really a function of the size of the development. Our initial analysis, based on some of the information we've had from the development partner, is it will be tens of millions of pounds. So, it would be one of the biggest, if not the biggest, business rates streams in Wales.

Okay. I can see the releasing of capital, the logic of that, and to figure that in. That's quite a hefty rates bill.

Yes. [Inaudible.] Tens of millions is an open figure, isn't it?

It is, but that's also tied into the commercial model and the confidentiality that the investor has. So, I can't give a number on that at this stage. Once we've done the deal and they're able to say how big their facility is, we can put that out there.

Tom, and I think, perhaps, Janet.

The Chair beat me to the post there on business rates. Just before you came in, we were having a discussion, and my understanding is that there's going to be a very large, if not the largest, data centre built in Scotland in the UK. And the estimated business rates for that, as we understand it—and I'm happy to be put right again—was £8 million. So, if you're getting tens of millions, how big is this data centre? Because it would have to be knocking on the door of the biggest in the world to build it to get tens of millions of pounds in business rates.

Like I say, I can't divulge that number at the moment. The number that we're using is based on our estimate and the other party's estimate. Until we've gone through a detailed process on that, we can't nail that number down. But the number that we've come at from both sides is very similar.

Okay. I appreciate there's commercial sensitivities around this, but you just said that the sale of the land would not be a million miles away from what Government has already invested. That's £70 million. So, let's just say, for argument's sake, the land is another £70 million. You're still £200-something million away from being able to get the capital to build the railway. I suppose what I'm struggling with is that, in nearly any other market, if there is an identified need and Government has put in £70 million, and now you're possibly looking at bringing in let's just say another £70 million—. If there was an identified need in the market for this facility, I would expect private investors to be all over this, to be sort of throwing themselves at you to help bridge that gap to make this project viable, but that doesn't seem to be happening. Instead, it seems to be, 'Well, the taxpayer's already put £70 million in; they actually need to put tens of millions, if not hundreds of millions, more in to make this happen.' So, I'm struggling to make those two things match.

So, we're not saying that the taxpayer has to put in hundreds of millions of pounds. What we're saying is that those investors who will put in that shortfall will put that money in themselves but they need to have a guarantee that, if the railway doesn't perform commercially as it's forecast to, they will have some kind of comfort blanket. As I mentioned, the entire renewable energy industry is based on contract for difference. So, the Government says to a renewable energy developer, 'If all else fails, this is the floor price that you will be able to sell your electricity for.' If they sell it for more—. If their windfarm is successful, they'll be selling it for way more than that. So, that kind of contract for difference guarantee approach is a well-trodden policy lever for Government.

It is, but for the delivery of a different type of service. It's for the delivery of electricity, not for a rail centre, so—. [Interruption.] Yes, sorry.

Can we perhaps—? Janet and Alun want to come in.

Yes. Well, I've got some prescribed questions, but I've got some of my own. Look, is this a failed project already? Because you came in and your opening line was, 'If we're still around in—.' You know, £70 million of taxpayers' money has gone in it. Can you give us a breakdown on how that £70 million has been spent?

I can. Let me find the page. I can write to you about it as well, but if I tell you what's been—

How confident are you that we as a committee shouldn't be suggesting to Welsh Government, 'Don't put any more funding into this, let's just pull the plug, because it's not going anywhere'? Five years is quite a long time. And I get it that we've had COVID, I get it, but other projects have been delivered during that time. You yourself, as the chief executive officer, have had five years' salary and haven't delivered anything as yet, and I'm still not convinced here today that you're going to deliver anything. You should be here convincing me that you are, and I'm not getting it, I'm not feeling it. But, anyway, tell us a little bit about what you've spent the £70 million on.

Okay. So, we've spent £12 million on earthworks—that's design and enabling work, so that will be surveys and drilling boreholes and goodness knows whatever else—£9 million on staff costs over the last five or so years; site operations and project management of just under £6 million; railway design of £11 million; we've bought some rail assets for just under £10 million; we've purchased land for just over £6 million; energy infrastructure grid connections for about £3 million and a bit; project advisory fees, on trying to raise the money, for just under £4 million; and then just over £1 million for a top-up to the escrow fund.

Do you feel that you're gambling with taxpayers' money?

No.

May I come in here?

Yes.

I'd say that I think it's a very legitimate question, and it's certainly a question that the board of GCRE challenge the executive on, on the spending and the stewardship of public money. We are at a fulcrum point here. And we're very conscious that—. Monthly, as a board, we ask ourselves the same question and are very conscious about spending public money and continuing to spend public money. We also, monthly, have direct communication with Welsh Government to make sure that they're fully appraised of the decision that we make. So, the question we ask ourselves as a board every month is: should we continue—do we feel that there is still value and opportunity here? And the answer to that, when we challenge ourselves and we challenge the executive, and Simon in particular as the accounting officer, is that, 'Yes, we do.' But that fulcrum point is very pertinent. The test, I think, looking forward from today, is looking at the opportunity that we have on the table today, not necessarily the opportunities that came and went two or three years ago. So, what I can say is that, and I appreciate that there are commercial sensitivities around the investor that we're having discussions with at the moment, the board have met them, they are real, and the opportunity that's on the table today is not something that we've had previously, and it's difficult to give you those assurances without giving detail, and I'm sorry I can't give you too much of the detail.

No, I get that.

But what I can give you is assurances that the board of GCRE, myself and the deputy chair, appointed by the Minister to look after the best interests of the shareholder, we do hold the executive to account, and that this opportunity is real.

What we really need with this fulcrum point now, to come back to that, is a decision from Welsh Government, because pulling the plug, shall we say, on the project is an option that we've put to the Minister. The other option is that we do the data centre only, and we've talked about that the rates that potentially could come from that are not insignificant. But it's the railway, really—. The data centre becomes the enabler for the railway, and it's the railway, really, that creates all of those jobs and that economic opportunity, which is the brief that we as a board and as an executive were given by Welsh Government all that time ago.

So, how confident, then, are you that this investor isn't going to walk away?

My experience in doing these disruptive models all over the world is that nothing is ever done until the ink is dried on the paper.

It seems to me, though, that the data centre is the be-all and end-all, when in fact it started off as a completely different notion about having a test centre in the UK for rail stock—railway stock, you know, rolling stock.

But, again, my experience in these sorts of projects, and unfortunately I've got some scars of doing a few of these now, is that they do change. You do have to be tenacious, you do have to listen to the feedback. So, when we went out to the market, we listened to the feedback, and we were able to pivot, based on the opportunity that was in front of us, with different priorities. But, as Simon's explained, it wasn't always just rail. There were other elements here; we've just changed the order, based on the opportunity that's in front of us. But, certainly—to answer your question, I hope—knowing who this investor is, it's an international blue-chip company that are incredibly excited about this opportunity. They are very, very credible. So, there is a chance that they will walk away, of course there is, until the ink is dried on that paper. But my personal opinion, based on my experience in business of over 30 years, is that this is the best opportunity that the western Valleys will have to put right some of the de-industrialisation impact that it has suffered over the years.

What's the time frame you envisage for that?

So, we've asked the Minister for a decision by the end of this year. That is critical, and that aligns to the investor's time frame as well.

Okay.

Sorry, Chair, just very quickly, is that calendar year, or financial year?

Calendar year—I beg your pardon.

Okay, Alun, and then—. Alun and Sarah, yes.

Can I just come back? Because you've mentioned the contract for difference in terms of the energy market and the guarantee. Wouldn't it be great if, on all developments, the private sector didn't take a risk, and the Government is the only person taking the risk? In terms of energy, there is a reason why that happens. Can you explain to me why the Government should take the risk and not the private sector?

So, I wonder whether we should just go back to what the purpose of GCRE is. It's not about creating a commercial business. Government shouldn't be in the business of creating commercial businesses for the sake of creating commercial businesses. The reason this is happening is to create employment and prosperity and opportunity. That's the policy that's being delivered, that we're trying to deliver, here.

So, that's the outcome that we're looking to effect. The railway, if built according to the economic impact assessment that PricewaterhouseCoopers have done for us, would be just under £5 billion over the next 60 years. That isn't bottom-line commercial profit; that's impact on creating 1,400 jobs in the western Valleys, on creating opportunities, on preventative measures in those communities, on keeping the railway open in that part of the world et cetera. So, the reason we're doing it is not to create a financial business, a commercial business. As it happens, there is a commercial business that's buried inside of this, but, in order to be able to deliver those policy outcomes, Government are going to have to step in if they want that to happen.

Yes, and I was going to come on to that in terms of the outcomes, because I think that is the crux in terms of whether Government should invest or not. But I do come back to that if the private sector—. The private sector will be looking to make a profit—that's why the investors come in. But they're looking for the Government to take the risk. That's the proposition that I'm hearing: the Government takes the risk; private investors take the profit. What Government also gets, which I'll come back to, are the outcomes. So, tell me whether you are now as confident as you were in those PricewaterhouseCoopers projections in terms of those outcomes.

So, that work was refreshed last summer, so we remain confident that that will all be delivered. I should just make a point, though, about the private investment and the profit. If Government had the capital available to them, it would be a viable choice for them to invest in this policy area to deliver those outcomes directly using their own capital, as they do with hospitals and schools and all the rest of it. They don't have that money. So, if they want to make use of the private sector's money, the private sector's got to get something out of it. They're not just going to say, 'Oh, here you are, here's 300 million quid.'

And sometimes risk is shared.

Sometimes risk is shared, but what we're aiming to do is to get to a place where that risk share is proportionate. But we've got to recognise that Government isn't just putting money in. Government will be getting all of that social value, that economic value, that prosperity in a part of the world where nothing like this is going to happen again otherwise.

That's 'hopefully'.

Sarah.

Good morning to you both.

Morning.

A question: the GCRE has been given an understanding, a letter of comfort, as funding is needed and Government support runs until October 2027. Then another three years of support is needed. How much more is the taxpayer going to have to pay out for this?

Okay. So, what we're talking to Government about now is making use of the receipt that we get from the land sale to pay for the operation of GCRE over the coming years. So, the proposal to Government is that they don't pay any more money out over the next three years to be able to keep GCRE afloat. That will come in from the receipt that we get from the work that we've done on the data centre. So, the data centre is not just a thing in itself; it's a means to an end to get the railway away.

I've got here 80 hectares for the data centre. I don't know quite how many acres that is. And then there's an option, apparently, I believe, of 140 acres for renewable solar and wind energy production.

Yes.

And has there been consultation and planning done on this at all?

No. So, the developer is willing to work through that. They will need to take the risk that they will be able to get this thing through planning.

Okay. That's all. Thank you very much.

Ben and then Tom.

Just staying on the vein of the data centre at the moment, when you outlined what you've spent the £70 million on so far, you said £6 million of that was on land. Is that for the whole—all of the land that you've got at the moment?

Yes, that's all the land we've got, including a site about 10 miles away.

And you're also saying that a portion of that land could potentially be tendered out for roughly £70 million, is that right, when you said in terms of getting back what the Government's put in so far.

So, the Welsh Government have put in £50 million, just to be clear. That's right.

So, from my perspective, if you've spent £6 million on land that you could now potentially sell for £50 million, that's a fantastic commercial opportunity. And it may be that inadvertently the Global Centre for Rail Excellence has found its skillset in finding prime locations for AI data centres. So, why, in your view, is it in the public's interest to invest in this project and not simply maximise the value out of the money that has already been spent so far to attract more data centres, and then you get the recurring tax revenue from that, and that money could be spent, potentially, on a rail centre somewhere else?

Yes, and that would be a perfectly rational and logical choice. Deb mentioned that there are options in front of Ministers. Just to reiterate: we’ve presented three options to Ministers. One is to just close the whole thing down and walk away. Option two is just to do the data centre only, which is the option that you're talking about. And option three is do the data centre plus the railway. The data centre will generate a lot of financial return, but I go back to the point that I was making to our colleague earlier on: the whole vision for this was about more than just making a financial return. Government shouldn't be in the business—well, I don't know, maybe you think differently—of being property speculators. The whole intention here was to deliver some policy outcomes around employment and all the rest of it.

The data centre will generate a few hundred high-quality, well-paid jobs. The railway will generate 1,000 more jobs. And that's the prize, I suppose. But it's for Ministers to decide. Do they want to stick or twist on this? Do they want to take the bird in the hand on the data centre, which would be, as I say, a perfectly rational and reasonable thing for them to do, or do they want to do the railway as well? And it's not our choice. We can make a recommendation to Ministers, we can give them the information that they need to hopefully be able to make that choice. But I'm sure you're going to ask the Minister in a minute which way he's thinking about it. And it's down to him. That's what he’s elected to do.

It's about the best use of public money, at the end of the day. You quoted £5 billion in economic value over 60 years.

Yes, £5 billion.

Yes, £5 billion. So that's roughly £83 million a year. So, we'll have to see whether or not there are other potential opportunities for spending to generate more economic value or not.

But, on the rail centre itself, you mentioned right at the beginning that there are different automotive testing centres in the UK. One of the key differences, obviously, between automotive and rail is that trains have to run on tracks. And tracks and platforms and rail infrastructure are completely different all around the world with regard to electrification or width, for example. So, given the objective of making this a global centre, what consideration has been given to the infrastructure to make sure that somebody from America's trains could be tested here at the same time as somebody's from China could?

So, I suppose it's a part of GB's legacy to the world that most of the world uses what's called standard gauge track, the track that we use in the UK. So, in Europe, 85 per cent of all track miles are on standard gauge track. So, there are places in the Iberian peninsula and eastern Europe where they use different gauges, our friends in Ireland use a different gauge, but the majority of track miles use standard gauge. The majority of track miles—and when I talk about a majority, I'm talking about 80, 85 per cent—also use the same electrification system, the 25 kV overhead lines. So, if we'd developed this using a more esoteric voltage or frequency or track gauge, we absolutely would have been confining ourselves. But what we've used is something that is much more universal. The big difference between the UK railway and the European railway is the size of the trains because our bridges are lower, the tunnels are narrower, et cetera. We're designing it so that we've got the height to be able to take those bigger vehicles. So, the design choices that we've made allow us to be able to get to the maximum size of the market.

Okay. Thank you, Chair.

Thank you. Shav, then Tom.

Debra, you've talked about the data centre, but in terms of the energy partner, can you tell us a bit—? Have you got one? Is that something that—?

Do you want to take that?

So, it’s a combined opportunity.

It's a combined opportunity.

Yes.

So, it's the same company that's interested in both.

Yes.

And Simon, you mentioned an additional site. So, you said you've got the main site—. What's going to happen there, then? What's that for?

So, we bought the other site for environmental and ecological offsetting.

Okay. What does that mean?

Well, if we go and build a railway or a big data centre, we might be disturbing the biodiversity and what have you on our site. Because a lot of the site is common land, we'll be having to restrict access rights to that site. So, we want to be able to offset that, provide those rights and that biodiversity elsewhere. That will be a condition of the planning process.

Okay. And these 1,400 jobs—. I mean, you've said 400 potentially for the data centre. Well, that might be in terms of building it mostly, but in the end, you're talking about 10 people and a man and a dog kind of situation to keep it going. These other jobs that we're talking about, how real are these jobs? Are they going to be good jobs? Are we talking about high-quality, long-term jobs? Or are they going to be in the here and now and then they're going to disappear at some point?

So, on the data centre, I think it's going to be substantially more than that number during construction. And in operation, it's going to still be several hundred because of the scale of what this partner is proposing. And they will all be well-paid jobs. They'll be £70,000 a year or £80,000 a year technical jobs inside the data centre. So, that's one part of it.

But with technology moving and changing so quickly, and obviously in terms of artificial intelligence, are we sure that there are going to be hundreds of jobs?

So, those machines—

Are they going to be long-term jobs?

Yes. Those machines are going to need tending to. That industry works on refreshing all of those machines on a really regular basis. There will be a really significant energy system to make all those machines work. That lot needs to be maintained and kept operational. So, I think we're as confident as we can be. If we look at examples in Ireland, where they've got a really substantial data centre industry, actually there's an awful lot of jobs, not just in the running of the data centre but in the supply chain around that, and I guess that's a really important part of it.

On the railway though, the railway itself will employ 100 or so people, but it's more the point I was trying to make earlier on about how our customers will put down roots at the site, how the hotel will employ a chunk of people, how the supply chain into managing and maintaining the railway will operate. This will create a pyramid of opportunities, and as we attract more customers to open up premises at or near the site, that will create further jobs.

Okay.

If I may, I think your question is very pertinent and actually goes to a lot of the information that we've tried to give today. We've talked about how the initiation of this project was about economic regeneration, and as someone who was born and bred in that particular area of Wales, then the data centres would give quite a good answer if we just did the data centres. They would create jobs, they would create long-term, sustainable jobs, we would hope. None of us know what AI is going to do in the future, but we would hope, based on the information that we know today, that they would give a number of good, sustainable jobs.

The railway, which is where we started with economic regeneration, would give so much more. It would give different types of jobs, it would give aspiration to the young people in that part of the world, which would give more engineering jobs, data jobs, plus people who would work in the hotel, et cetera, et cetera. So, a greater diverse range of jobs that are far more sustainable, that would really help to regenerate that part of Wales.

And do you think we're going to hit our—? Going back to the point the Chair was making, we've got until 2026 really, calendar. You're confident that this is going to come off, are you?

Well, it's not our choice, at the end—

And are you going to be able to be in front of the committee next time and go, 'Here's my presentation and this is what this new site is going to look like'?

It really is not our decision. The options are with the Minister, and I don't want to put any pressure on him—I know the Minister's coming in—but what we are hearing from our partners—sorry, I'll wrap up—is that it's pretty critical for them, and for us as GCRE's board, that we have a decision. Whatever that decision is, we need that decision quite quickly.

Thank you.

We have gone over time. Just a few minutes—. We'll go another five minutes or so, but if you can be fairly quick with questions. Tom, Kiera and Leticia, I think, want to come in, and Alun also.

Thanks, Chair. I'll be very, very quick—two very, very quick ones. The receipts that you're going to get from the sale of the site, presuming it all goes ahead, just for my understanding, are they going in a pot towards the capital costs, i.e. towards the £380 million to build the site, or are they going into operational costs to sustain wages and the rest of the bills that you've got coming out? So, that's the first question: which pot are they going into?

And then the contract for the different stuff that you keep referring to, around that's your ask to the Welsh Government, what forecasts have you done? How much, worst case scenario, would the taxpayer be on the hook for? Is it £10 million a year? Is it £100 million a year? Do you have those figures?

I don't have that number at the moment; we're working that through. But I should just say a little bit more about—. Sorry, Chair, if you'll just indulge me. On this kind of subsidy regime where the private sector is incentivised to put their own money in—. I mentioned that one of the things I did earlier on in my career was Superfast Cymru. So, during that project, we went from 45 per cent of premises in Wales having access to superfast broadband to 95 per cent, in the space of three years. We paid BT £205 million to be able to do that, because they wouldn't have delivered that roll-out on their own; they didn't see a commercial model for being able to do that. It was a formal subsidy control mechanism, which includes clawback, and that's a really important phrase. Since that thing was built, all of the money that was put in has been clawed back from BT, because it overperformed its business plan. That mechanism is going to be available here. So, there might need to be some comfort level, but, actually, the opportunity to get all of that lot back will also be there.

Sure. You want a decision by the end of the year, but we don't know how much the taxpayer is going to be on the hook for. I would have assumed you would have had that figure, to say, 'Worst case, it's going to be £200 million.' How can we make an informed decision without knowing that?

So, what we're asking for is a direction of travel at this stage. We're not asking Ministers to sign off on this, because we don't know how much this whole thing is going to cost yet. There's another three years of development ahead of us to be able to nail this down. It's a subsidy control regime, so it's got to be notified to the Competition and Markets Authority, and all sorts of things could happen that will affect those numbers. So, what we're looking for is: 'Do you want us to open this door and carry on with this development, or do you want to close the door and we walk away?' That's the decision that's needed.

Thank you.

And the sale, is that going to capital project, or is that going to operational?

So, all of that money is—. All of our activities are kind of classified as capital, because they're essential to develop the business. So, it all kind of goes into one pot. But, again, that's a decision for Ministers. Ministers might decide they want to keep that money and close us down.

Okay. Kiera.

You said at the start of the meeting today that you wanted to operate towards net zero, yet you've also said you're going to build, potentially, one of the biggest data centres in the world. I just had a quick look now and the one in Scotland potentially could use as much energy as 2 million homes. So, this one could use more. Are you saying that you're going to be able to offset that with your energy partner—2 million homes-worth of energy produced in a net-zero way, as well as the rail centre, as well as the hotel?

So, just in terms of load, the data centre will be way bigger than any of those other things, so they're kind of in the noise, frankly. So, the energy partner is looking at quite a sophisticated approach to bringing energy in on the site—and not developing energy just on our site, but on neighbouring sites as well—to bring in renewable energy sources that currently can't get to market because of grid constraints, being able to offer a route to market for those other energy projects to be able to sell that energy.

So, will the rail centre, the hotel and the data centre be operating at net zero, or near net zero.

That's the intention. I guess that the—. There will be times when it won't be operating at kind of zero carbon, and, at other times, it might be exporting zero-carbon energy to the grid, so we get to that net-zero place.

Okay. We've got two minutes. Leti.

Has a phased development been considered? For example, will the project be delivered in stages, with each stage providing a functional facility while you secure more investment?

So, it's a really good question, and one we've been asked quite a few times before over the years. So, in order to build the—. This railway is going to be a loop of track, with a load of earthworks and drainage, and all the rest of it. So, you can't just build a bit of drainage, or a bit of the cutting that the railway needs to go through. You've got to build the railway—. Sorry. You've got to build the earthworks platform, you've got to build the drainage, you've got to build the track, you've got to build the signalling and the power systems. If you don't have one of those systems, there's no facility there. So, it's kind of all or nothing on the railway.

We would have loved to have found a way that we could have just done a little bit of it as a proof of concept. But if the aim is to build a 7 km loop of electrified track, you've got to build the whole loop; you can't just build a part of it. So, we've looked at that question lots of times and tried to kind of cut out bits and pieces over the years, and the design has evolved to be able to reflect some of that, but, ultimately, we've got to build the entire loop or nothing at all.

Thank you.

Thank you. And finally, Alun.

I was interested in your projections for jobs created by the data centre. I wonder whether you could provide us, possibly after this meeting, with the basis for the inflated figures that you provided—hundreds of jobs at £70,000 plus within the data centre? I think those are quite inflated figures, but I'd be interested in how you've come to those figures, whether it's just from the developer or whether it's work that you've done yourself.

Yes. And it tracks back to the size of the data centre, of course, which is commercially sensitive stuff.

Yes. Absolutely, but still—.

Yes.

Right. Thank you very much. Diolch yn fawr iawn. Time has flown by. I'm sure we could have spent another hour on this, but, obviously, we have the Minister soon also. I know we've given you a good grilling, to say the least, but it's important that we, obviously, dig deep into these important issues. Diolch yn fawr iawn. Thank you very much.

Thank you. And thanks for the opportunity to give evidence.

Okay, we will have a five-minute break now quickly, if you want to have a break before we have the Minister.

Welcome back to the second session of the Economy, Energy and Connectivity Committee meeting. I'd like to particularly welcome the Minister and the officials. Would you introduce yourselves briefly for the committee?

I am Adam McDonnell, the head of commercial solutions, as part of the economic development directorate.

Thank you very much. Welcome.

Bore da, bawb. Jo-Anne Daniels, I'm the director of economic development operations in the Welsh Government.

Thank you very much.

Welcome. Of course, we have just had a session with GCRE officials before this session. Perhaps as a starting point, would the Minister agree with GCRE, regarding the rail testing facility, that the commercial need for such a facility is clear?

Well, I think that one of things that is a backdrop to the whole project is an assessment of the extent of the commercial opportunity. And one of the things that lies in the background of this project is that there were declarations of interest by private companies in the use of this facility. However, nobody is willing to state that they wish to use it, and to what extent, before anything is established. Therefore, there is a complexity at work there, and I think that everyone acknowledges that that is the case.

We inherited this project as a new Government, and I think that we share a desire expressed by members of the committee to reach a point as quickly as possible where we can make a decision about the future of this site. That is for the benefit of everyone, of course. We have to establish the best value for money for the taxpayer—that is, in the financial sense, but also in the broader sense of interpreting public value, because there are implications and potential as regards developing the economy in a part of Wales that truly needs this kind of development. So, we are seeking to work as quickly as possible to reach that point. But, of course, we will need to ensure that we make that decision when all the information required is available to us so that we can make that decision. That is what we are focusing on at present in order to ensure that we maximise the best value for the taxpayer and for residents in this part of Wales.

Diolch. Tom.

Thanks, Minister and co., for coming along. It's been a very interesting morning. Where to start? During a previous scrutiny meeting, we had Steer here, and they told us that we could draw a conclusion that the fact that GCRE has not been able to draw any private investors in is an indication that the private sector is not convinced by the current business case. Now, if you combine that with the fact that Research England actually was looking to invest £15 million in a grant to the University of Birmingham there, but then withdrew that money, again because they weren't convinced that the railway was actually going to be built, what is the Welsh Government's assessment of whether this is still a viable project?

As I said in my opening remarks, really, I think that the essential situation that we are in, isn't it, is that GCRE has reported strong interest from across the rail industry, in the UK primarily, in the potential for a facility of this kind, but with the caveat that, for that interest, in general terms, to be crystallised in revenue certainty, which is what you need, really, to make an investment decision, whether it's a private sector investor or in terms of public investment, then those interested potential customers actually need to turn that level of general interest into something that is more bankable, effectively. And I think that's the backdrop to the lack of concrete private sector investment that we've seen so far.

But if there's a gap in the market the way that GCRE say that there is, then one would expect the market to respond positively to the Government putting £70 million on the line, finding a site, and saying, 'We support this project.' If there was that need in the market for this site, you would expect private investment to almost jump at the opportunity to get on board with this site, and that hasn't happened. And then, we've just heard from GCRE now that they're looking to sell a parcel of land potentially for a data centre, which would generate tens of millions of pounds more in receipts, and that still hasn't enticed the private sector. So, has the Welsh Government done an independent assessment of whether GCRE's assumptions of a market need for this site are stacking up, because I'm not seeing it yet?

I mean, there is a gap in the market, isn't there, because a facility of this kind doesn't exist. But the question is: is there a market in the gap? And that is the key question. We very much have focused our work on that question. I'm wondering if officials could say a little bit more about the work that we have undertaken so far to give us a firmer answer to that question.

Yes. So, in the light of the most recent business case that was presented by GCRE, we have engaged with external advisers, looking at this very point, 'There may be a market there', 'Will the market come?', or, 'There's a stronger market there. Will it invest?' And I think that's the key point of your question. Coming back to why there's been no investment to date, I think it is reasonable to take GCRE's point that two of the major issues are revenue streams and cost, and the sort of objective of trying to nail down the cost over the next period is where they've arrived at in order to try and secure this private sector investment that you refer to.

Can I be a devil's advocate?

By all means.

Isn't the reality with this project, from day one, that it was introduced at haste, based on a French Railenium centre, which was opened in July 2017, and in exactly the same month, the Minister then for transport, Ken Skates, introduced GCRE as a replacement for the failed Circuit of Wales project, which had already lost £14.9 million? So, in reality, it wasn't introduced in response to industry-led demand or commercial potential; it was a political necessity. And isn't that the crux of the problem about why we haven't had any private sector investment?

As I said in my opening remarks, really, this is not our project, and as to the premises on which it was built, I could give you a commentary and I could give you a view, but they weren't our premises and the proposition isn't ours. There is a sense in which there's a kind of 'build it and they will come' basis for the idea. And to the questions that you've asked us, really, of course, you have to be very, very sure of the business proposition if you are going to invest, whether as a private sector investor or as a public investor. And the process that we're going through, essentially, now is to try to crystallise these questions as quickly as we can, because we don't want for this to go on indefinitely. I think everyone is agreed that we need to make a decision very, very soon, and it's very much looking at a range of options.

For a range of reasons, the original premise has not turned out as was hoped for, I think, is a fair way of expressing it. There are particular context-specific reasons as to why that's the case, but we are where we are. I think we are very much clear that we need to make a decision on the range of options. One of the things that has changed, of course, which you, I think, discussed in your earlier session, is there is now an additional dimension, in a third-party, private sector data centre developer, looking at combining that with energy investments. One of the things that we're doing at pace now ourselves, obviously discussing with that potential investor, is looking at the decision that we have to make, whether we are to proceed with the project in some shape or form, in what shape or form, what delivers the best value. We are very focused on those discussions. This new dimension does change the context very significantly, but we are very much focused on how do we derive the best public value in the context of that new dimension and what it could represent for the taxpayer, for the local community and for the wider regional economy.

Thank you. Shav and then Janet.

I feel like, so far, the representations are quite flat in comparison to the previous panel, who seemed to be quite excited that this project is now going to come off and that there's going to be this data centre, there's a partner there that's also going to bring the option for energy. But we also have heard today that the project is now going to be costing between £300 million and £400 million, and that money has got to come from somewhere. Have you had any discussions with the UK Government in terms of drawing down money from the National Wealth Fund, for example, for this project? Because, ultimately, if this is about creating more jobs for the future and economic growth et cetera, then it's not something that the Welsh Government alone can really shoulder the burden for, at this stage anyway.

The UK Government, of course—a previous administration—has been involved in the previous iteration of this project. Certainly, in looking at strategic developments, we are constantly speaking to the UK Government and other players like the National Wealth Fund and other key stakeholders. There was the announcement, wasn't there, just in the budget about the strategic sites accelerator. So, we're constantly engaged with those kinds of discussions in general terms. In terms of the specifics of this project, we have not yet specifically put a proposition to the UK Government. When we have got to the position where we are clear about what the best value proposition is for Wales and for the local and regional economy, it's at that point, I think—where we have a specific proposition to put in front of potential UK stakeholders—where we would expect then to have those discussions, where appropriate. I don't know if officials would want to add anything.

As the Cabinet Minister has mentioned, the UK Government has provided £20 million into the project to date. That's in recognition that the potential benefits of a rail track would accrue UK-wide, because the rail industry generally across the UK would potentially be beneficiaries of that, and a recognition of that fact is that wider investment. But as the Cabinet Minister says, depending on the decisions as to the project going forward, there may be a very good reason to revert back to the UK Government in terms of conversations about next steps.

Just to be clear, if we end up in a position where we think the best way forward is renewable energy with a data centre, unlocking the prospects of a major employment site, then that's one proposition, and we could have conversations with UK Government partners in the context similar to the one that I just referred to in the context of the budget. If it is still with a major rail component, then there are probably different parts of the UK Government that we need to engage with. So, we need to get that position first, and it's at that point where we can see what appropriate role there may be for UK Government co-investment.

Going back to the previous panel, what they basically told us was that without the data and energy partner, this rail project doesn't come off. They've also said that they need a decision by 2026. Are you confident that you're going to reach that decision? At some point, we need to make our minds up as to whether or not this is a viable project, because there are a lot of people who are looking at this thinking there could be some opportunities, particularly in terms of jobs. Tata Steel has often been mentioned. What does that future look like? Are we going to meet that 2026 challenge? Are we going to meet that deadline, do you think, in terms of making a decision?

As I said, it's in everyone's interest for us to make the decision as soon as possible. You don't want to make it prematurely in the sense that you haven't done the work to bottom out what is the best value proposition, but we're not talking about this becoming an indefinite extension. All I would say is that the project has been in existence for five years. We're five months into the new administration. We've worked at considerable pace, and we're very clear that we need to make that decision very soon.

Other parties, including the private sector investor, are agreed, and I think that GCRE themselves today underlined that they also want the decision made. So, I think we're all agreed that we need to make that decision, and we have a range of options. The interest that has been expressed by the private sector investor related to the data centre development creates a new dimension, which we need to evaluate very quickly. That's what we're focused on, because it does change the context. On whether or not the project still has a rail component, as you say, the GCRE are very much of the view that this should be part of it if it is to go forward as a rail testing facility. There are other options that we have to consider as well.

Okay, thanks.

Diolch yn fawr. Janet.

You say that there are a wide range of options. Previously, the panel said you have three options, really. Clearly, when you look at what the purpose, ambition and goals were about the rail industry in this particular site, they've not been met. Do you have any confidence they're likely to be met? And do you believe, when it comes down to costings, it will be delivered within the current estimated cost of around £400 million, or do you think inflation and other factors may increase costs further?

We've taken some of our own advice in terms of some of the market scale questions, and then some of the costing questions, and they're both important factors in coming to an evaluation of whether this is a viable proposition, given the very large upfront capital investment costs. There's a reason why there are relatively few of these testing facilities, even across Europe. They are very expensive to build. There is a need there, I think that's acknowledged, but that's a large upfront capital cost, which then has to be expended on the basis that a stream of revenue is going to accrue.

One of the issues and one of the challenges is that, given the nature of the industry, those revenue streams can be—it's a non-technical term—lumpy, because Governments, including our own, of course, go through a period of commissioning lots of new trains, so there's a programme where those new trains need to be tested, et cetera, but it's not a simple market context. There are many—no pun intended—moving parts here, which is why this is complex and not easy.

But to be clear, when I said there's a range of options, they are, essentially, doing nothing, ceasing the entire project; there is the prospect of what GCRE are advocating, which is combining the private sector new data centre as a means of realising and addressing some of the funding challenges that I've just referred to; and there's the possibility of doing something else with that private sector investment to unlock other opportunities in economic development and employment terms.

I suppose there is a fourth theoretical option, which has happened in other parts of Europe, which is a fully publicly funded rail testing facility. Given the nature of the capital investment and the state of public finances, not just in Wales but in the UK, that's a very difficult option to see as one that could be practicable. So I think, yes, it's the three other options that are the focus, largely, of our thinking.

From my perspective, I'm really worried that you as a Government may continue to throw good money after bad. The opposition and the questions that are coming in to me are, with funding and with public resources being so tight and so challenging, at what stage are you going to say, 'Enough is enough, this hasn't yet achieved, after five years, what it was intended to do'. It was meant to be this all-singing, all-dancing rail facility for testing that would attract inward investment from international companies, companies in Europe. Even the chief exec himself, when he sat down there today, said he didn't really know whether this thing would still be around in three years. I'm really sceptical. It's a huge decision you've got to make. I particularly am very reluctant to support any move that sees any more public money going into this, given that they've had this amount of time to attract private funding.

And then, okay, we can all get carried away with the data centre, but they're not the most popular things. And of course all this is subject to planning and everything. The letter from Powys County Council has made it quite clear: 'Do not take us for granted.' Whilst they support the GCRE project, the initial project, it's very much subject to some of the things—. I'm not convinced about the environmental and biodiversity work that they were thinking of doing on this other piece of land. But they were almost desperate today, sat there. I've taken a lot of evidence over 16 years here, and they want you to hurry up and make your minds up which way you're going to go. It's a big decision, but all I know is that it's already had £70 million of taxpayers' money, which could have gone into health, could have certainly gone into other things—

Perhaps that can be part of the summing up.

I think we're all on the same page here. Our clear focus is on getting to a decision, whatever that decision is, as soon as we can, so we're not going to be in the position of indefinitely kicking a can down the road, et cetera.

Or bailing them out with taxpayers' money.

For our own budgetary reasons, but also in the context of the private sector investor, like any private sector company, in terms of their own investment decisions, they need to get to that point in terms of decision making as well. So, I think we're all agreed, and, yes, GCRE themselves, we're all agreed. We all want to get this position as soon as we can. So, we're not talking about just continuing this five-year project, continuing without any decision being made in terms of its long-term proposition. So, we will get there, and we are very, very actively engaged.

You'll appreciate that I can't say much about the commercially sensitive discussions that we are having, but we're speaking directly to the investor, and we're doing everything we can to get to the decision that members of the committee have urged us to make, and we're very much focused on that.

Diolch yn fawr. Alun, then Tom.

I assume, and having heard what you've already said, that the central question remains: what is the benefit to the Government of putting money into this development in the end? And that brings us back to the question of how robust do we think the aims of the project are in terms of creating jobs and so on. Has the work that you've done already through the expert council, and so on, cast more light on how robust those estimates are?

And also, we heard today from the witnesses that were in here before you about some of the potential benefits of the data centre, and so on. And there were figures, I would say, that were quite high in terms of what they estimated: hundreds of jobs in that data centre, and they would be permanent jobs, and they would pay very well, £70,000 each, for example. To what extent have they shared any information that they hold with regard to their estimates on job creation for the initial project, and in relation to the data centre and the energy project?

The job figures for the original core project, if I can put it like that, emanate from the external expert work that was undertaken originally as part of the process. A lot of different external studies have been commissioned by GCRE, and we as a Government have also undertaken some. However, we acknowledge that there is a need for clarity about the job figures that are associated with the new opportunity around the data centre and the energy park. I don't know if Jo-Anne could say a little more about this.

Yes, certainly. So, as I'm sure you will have heard from GCRE colleagues, the economic case that they've included within the business case that they've submitted to us, which was undertaken by PwC and which we received, I think, in June, July, was primarily predicated on the benefits accruing to the rail case and the jobs assumed to flow from that. The discussions with the data centre developer concluded as part of the tender process, I think, in August—apologies if I got my timelines a little out then. So, we need to look again now at that economic case to look at the potential economic benefits that accrue from the data centre as distinct from the rail element.

As you've indicated, and as I'm sure GCRE colleagues would have said, many of these conversations are commercially sensitive, and obviously, the jobs created depend on the footprint and the finer points of how that will operate, but they have indicated to us that jobs would be in the order of hundreds related to that data centre.

Yes, it's interesting, isn't it, that actually they're quite often reticent to give us any figures, apart from created figures for jobs created: 'Yes, we know that we will create hundreds of these jobs, but we can't tell you about some of the other sensitive information.' Sometimes I find that worrying, and I'm not sure, and I'd encourage the Government to look closely at those figures. I think they're probably on the high level.

Yes, we can certainly explore with GCRE and with the investor to what extent they would be willing to share with you as a committee, on a more confidential basis, some more information, basically, about the scale of the project. Again, we can't, obviously, directly give those undertakings, but we can certainly, if the committee is interested, explore that with them.

I think that would be appreciated, because the other figure that was shared was that the business rates generated by this development would be tens of millions. However, there are a couple of things. First of all, we've looked at a similar model in Scotland—the biggest, we understand, in the UK, wasn't it, that we looked at, at the moment—and that has £8 million a year, business rates. There's a substantial difference between £8 million and tens of millions.

And then that leads on to another question: well, if somebody does allow that to be kept in house, if you like, specifically related to that site, usually business rates go to the central pot, to Welsh Government, and then are divvied up to all other local authorities in Wales, well, even if it's £10 million a year, that's a net cost of about £500,000—£400,000 or £500,000 a year, pro rata—to every local authority in Wales. If it's tens of millions, it's even more. At a time when other local authorities are all strapped for cash, that would be quite a big ask, I would think. So, I think those figures need to be firmed up.

Yes, sure.

Tom.

Chair, once again, you beat me to the punch on business rates. [Laughter.] It was building on what Janet was saying earlier: so far we've had five years, £70 million. We don't have anything to show for it, really. In the previous panel, when we were asking about specifics around the total costs of the project, it was all still, 'Well, we need to go to a detailed design phase. We're not quite sure on that, we need to do more work. We've got another three years of work to do.' And then, yes, you get to the business rates question, which is that they say it's going to be tens of millions of pounds. I've just had another Google now and there's a data centre in Newport—the biggest in Wales—and that only generates £2.4 million in business rates. So, this is going to have to be a ginormous data centre. So, I seriously question whether tens of millions is an accurate figure.

And then, they start talking about the contract for difference—this idea that they want the taxpayer to give a guaranteed fixed revenue to attract that inward investment. But, again, they couldn't give the figure on what they wanted that fixed subsidy to be and how much of a liability the Government would be taking on. So, there are a lot of unanswered questions that we still have for a project that's had five years and £70 million.

So, I guess my question, Minister, is: are you—? First of all, what are your thoughts on this idea of a contract for difference type of model? I'm very sceptical of it. And what assessment has the Welsh Government done, if you are going to go down that route, of how much money the taxpayer would be taking on as a potential liability?

Well, I think that in general terms, we, like any Government, should explore any innovative financing model on face value carefully, because obviously, again, we're very much mindful of public value. In a sense, the proposition of using a stream of future business revenue as a means of financially de-risking, the project that actually is generating the revenue is novel, as far as I’m aware, in a Welsh context, anyway, and would require careful analysis. I think that’s my ministerial response. [Laughter.] I think I’m straying into Yes, Minister. But I don't think it should be dismissed out of hand in any and every context. Interesting and novel ideas are useful as starting points, aren't they? And in a sense, it's not a million miles away from things that already do exist, certainly in the UK, tax increment financing, et cetera. So, capturing some of the uplift in order to make the finances work is something that does happen. And then you've got to look at the context, and you've got to work out, 'Well, is it worth it?', because there's always an opportunity cost, isn't there?

I suppose one of the arguments in this context is, well, maybe if the project would only happen because of the particular financing mechanism, then that's a different situation to something that's going to happen anyway, and then you're forgoing the public revenue that could be used for public services. So, what I'm saying to you is: look, we should look at any prospect, any novel financing idea, but we've got to look at it in a clear-eyed way. And if you're referring as well to the potential of using the Welsh Government's risk guarantee powers, again, we have very limited borrowing powers. We have the ability to provide a guarantee, but, again, that has to be used in a very judicious way because it's essentially a form of insurance in a way, isn't it? People use these mechanisms in private sector contexts, et cetera, but it's got to be done only after a very clear assessment of the balance of risk and benefits.

I think that's about as much as I can say because, until the proposition we're actually focused on evaluating is crystallised, then you can't actually do the maths in terms of working out what is the real benefit versus what are the potential downside risks that we have to be conscious of as well.

But just very, very quickly then, Minister—thank you—are you reassured that the claim of tens of millions of pounds in business rates coming from this data centre, are you reassured that that claim is accurate?

Obviously, in doing our own due diligence, and to the extent that that question became a material factor because it was built into the architecture of how the whole thing works, then obviously we would absolutely need to satisfy ourselves that those figures are accurate. I think that's about as much as I can say at this stage, unless officials would like to add anything.

Diolch yn fawr. There are just two minutes left, so Kiera and then Ben, quickly, and then if there's time—.

I’m just wondering if you have any concerns around the potential size of this data centre. For reference, the current largest one in Scotland is estimated to use around the same amount of energy as 2 million homes. The GCRE told me in the previous session that this is likely to be significantly bigger. So, potentially, we're looking at the same amount of energy use as double the amount of homes in Wales. I wasn't convinced by their explanation as to how they would offset this, either, with their energy partners. So, do you have any worries about this, should the project go ahead, and how this will impact net zero?

Well, as with every other project of its kind, I think all of those questions are important, legitimate and material. And if the project was to get to that stage, then obviously our planning policies would then apply. And you'll be aware as well that we are developing a strategic framework more broadly for data centres because of the wide-ranging issues of public policy that arise, some of which you've just referred to, in terms of energy, in terms of land use et cetera, use of water. All of those would apply in any case in this context. It is a former opencast site, of course, so there are some environmental remediation benefits to some of the work that has gone on, and indeed will continue, and that's an important factor to stress as well, but many of the issues that you raise, they arise in any and every context where we are looking at a data centre development.

Ben, quickly.

Sure. You mentioned at the beginning that one of the options that is potentially on the table, albeit unattractive, is publicly funding the whole thing. That raises a question to me. As the Minister in the chair today, are you confident that this project can attract the private investment that it says it needs?

Yes. I mean, I think I was merely pointing out that a fully publicly funded proposition is challenging. I don't think that's a controversial statement or a surprising one. But, in terms of the private sector investment, I think that, for the reasons that I shared earlier, there's a sequencing issue here, which is part of the problem or the challenge and why these facilities are relatively rare. There are plenty of customers that will say, 'Oh yes, we'll use the facility,' but it's very difficult to raise finance on the basis of a general expression of interest rather than a contracted volume that is bankable to make an investable proposition. So, that's part of the reason why there are few of these facilities. That doesn't mean to say necessarily that it's not a viable proposition, but it does explain why actually getting to and accruing the necessary scale of investment is difficult, either for the private sector or for the public sector as well.

Thank you.

Iawn. Okay. I think we have run out of—. Quick, then.

Quick question: if this doesn't come off, if this project doesn't come off, obviously there's value in terms of the land. Do you think that if we were then to sell the land for other reasons that we would be able to get our money back?

Well, I think I think, obviously—

And then some? Is that an option?

Yes, I don't want to pre-empt the decision that we're going to make in terms of the best way forward. All I can say is there is public value here and there is both current public value and there is prospective public value, in terms of the potential use of the site. We are absolutely very much focused on how we can generate the maximum value. I've been speaking in very neutral—. You said 'flat', I think, Shav. I've been speaking in neutral terms today because I think it's very important—. You know, I'm normally the passion guy in the room, right—

That's why I asked the question.

And look, I think there's nothing wrong with having vision, a vision, and there's nothing wrong with coming up with exciting new ideas, but there is always a point in any journey, and that's true in business, and that's true in Government, where you have to look at things very, very clear eyed and dispassionately. And so, it's that, and that's in everyone's interests. That's the point where we're at. And all I can assure you is that we will absolutely make a decision on best public value, not just in the narrow financial terms, but also thinking about the wider economic impact in terms of the locality and the region. We're going to get there as soon as we can, and we'll obviously share—. We'd be very happy to return to the committee when we reach that point to explain our rationale, and also how we then implement the path that we've decided is the best one.

And in terms of those jobs as well, can we also look at the assessment in relation to the skills, and whether or not we have the skills in Wales?

Yes.

That would be really helpful for us to see.

Sure. And that, certainly, is a very, very important component as well. We'll very much focus our minds on that.

Thank you.

Thank you very much. Thank you, Minister, and thank you, officials, as well, for a very important contribution today. We appreciate the challenge. Thank you very much.

Diolch.

Right. I can see that there are a large number of papers to note, a number, under 4.1, relating to GRCE, of course, and today's discussions, so those are all of use to us there. Are there any of these in particular that anyone wants to talk about—4.12, perhaps, the review of the legislative consent process? Was that flagged up?

That may be something that we can consider in the private session, Chair.

Yes, okay. If there's nothing else—. Sorry, Tom.

Just a very quick one, Chair, apologies. On 4.6, the letter that you kindly sent to the finance Minister asking for a reply—did we receive one?

Yes. There is—. I think it's in the pack; a supplementary e-mail, I think, has come.

Yes, there's a supplementary e-mail to Members, and also it's in the supplementary pack that was issued on Monday.

Right, okay. Thank you. I just missed that.

If so, we will note all of those papers.

And that leads us on nicely to item 5, which is the motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of the meeting and to go into private session. Are Members content with that? Yes. If so, we will move into private session. Thank you very much.