Ulster taxpayers lost out on their share of the superprofits earned from the sale of CastleCourt shopping centre, a public watchdog has concluded.
The Northern Ireland Audit Office is demanding to know why the taxpayer will not retrieve any of the £10m grant used to develop the very successful Belfast mall.
Last November, Business Telegraph, revealed that John Laing was not required to repay any of the grant while the developer enjoyed a generous return.
In its report published today, the Audit Office blames weaknesses in the legal agreement drawn up between John Laing Ltd, the developer, and the Department of the Environment.
The Audit Office says the taxpayer should have recovered at least £400,000 from the sale of CastleCourt, which, at a conservative estimate, netted John Laing at least £16m in profits.
The report also criticises the DoE for paying the £10m Urban Development Grant before negotiations were finalised. It further reveals that a key DoE adviser was allowed to switch to the Laing team before the deal was completed. The report highlights a lack of communication between the DoE and external advisors.
The centre, which was completed in 1990, was valued for clawback purposes at £55m in 1992, when the property market was in recession. The development costs were put at £59m which left John Laing with a paper loss of £4m.
Therefore, no clawback was then possible. Two years later, the market had recovered and CastleCourt was sold to the Peterborough property giant, MEPC in a deal worth at least £80.5m.
No money was clawed back, because it was outside the clawback timeframe. Without explanation, the DoE reduced the clawback period from five years in the initial draft agreement to two years in the final contract with John Laing.
This was contrary to the recommendations of the Public Accounts Committee and the DoE's own consultants.
John Laing consequently earned 20% profit margins, the maximum allowed under the grant scheme. In addition, the developer was allowed to include £8.4m in his costs - to account for the interest which would have been paid had the company borrowed from a bank rather than use £15m of its own funds to build CastleCourt. The DoE argued that any UK developer would have made such a demand.
This effectively guaranteed the developer an overall return of some £21m before clawback could be invoked. Based on this calculation, the profit eligible for clawback would have been £3.3m, of which the DoE was entitled to receive £400,000.
The DoE will give its response to the Public Accounts Committee later this month.
The CastleCourt Complex in the centre of Belfast.