How £25m became £55m
Did the Welsh government get a good price for Cardiff airport?
The Wales audit office has sat on the fence, but as ever with reports from the public spending watchdog, it gives a fascinating account of what was going on behind the scenes in the most talked about acquisition by Welsh government ministers in recent years.
In July 2011, the Spanish owners Abertis had asked for £200m when Carwyn Jones flew to Barcelona which strongly suggests it wasn't interested in selling, or as the report puts it, in characteristically dry language: "Officials felt that the price suggested was so unrealistically high as to be a total rebuttal of the Welsh government's approach."
Something is only worth as much as someone is willing to pay for it, and a year later Abertis told Welsh government officials it was prepared to enter into formal negotiations if the price was close to between £56m and £58m. That is, presumably, why the Welsh government made an unbinding offer of up to £55m in December 2012.
It appears to be a remarkable coincidence then that three months later, after numerous projections and valuations, the eventual agreed price was £55m (or £52m plus £3m cash). This is something the assembly's public accounts committee will be exploring in its inquiry in the coming weeks.
In fact the report says: "The Welsh government's prime concern was that Abertis would withdraw from negotiations if a revised offer was made that was significantly lower than the non-binding offer that the Welsh government had made in December 2012."
The key question is whether that price was justified on the commercial terms required for EU state aid purposes?
The striking point is that at the time that the unbinding offer was made in December 2012, there was only one initial valuation on the table from the Welsh government's accountants KPMG, and it was between £25 and £35m.
Not only did government officials ignore that valuation, but instead struck a provisional deal with Abertis which was up to double that amount.
KPMG actually updated its valuation in February 2013 to an even lower figure of between £20m and £30m.
Officials felt KPMG's assessment was too low and put another bid in to Abertis of £41m, which was rejected by the company.
Welsh government officials then asked KPMG to work up a range of new valuations based on a range of scenarios prepared by an aviation consultancy.
The results varied from between £30m to £80m, but crucially KPMG was told to base the valuations on future profits as officials felt this better reflected the potential of the airport than one based mainly on historic under-performance.
It's worth remembering that KPMG's initial valuation of £25 to £35m reflected what the report called the airport's "weak performance relative to historic levels and the low current profitability compared with future profit levels forecast by Abertis."
So it's clear that the focus on the future, rather than the past, made significant differences in the valuations.
The engineering consultancy Arup then were commissioned to follow this up with a review of the valuation evidence, and identified a figure of £55m, which was the eventual price agreed on.
So it's clear that there was an initial disagreement between KPMG and the officials on what the airport was worth, and opposition parties have seized on this as evidence that the Welsh government paid too much.
But this isn't the full story because there are much higher valuations if the airport is considered a public asset, rather than as a straight commercial operation.
It's on this basis that the First Minister is on stronger political ground. He can point to a significant growth in passenger numbers and destinations.
He says he believed the airport would have closed, and in so doing threatening the 1,600 jobs at the British Airways Maintenance Centre on the same site.
He can't prove that but he can point to a lack of investment by the Spanish owners and it's clear to anyone who has gone to the airport recently that it's now in a far better position than it was a few years ago.
And it's those arguments he'll be using to persuade others that in this case the market was failing, and state intervention was required.