Government urged to help Swan Hunter win order: 20m pounds contract lost unless down payment is underwritten

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TIM SAINSBURY, the industry minister, was last night under intense pressure to help Swan Hunter secure a vital export order from Oman or see survival prospects for the Tyneside yard dwindle still further.

The pounds 20m order for two naval patrol vessels is almost certain to be awarded to a rival European yard unless the Government agrees to underwrite an initial pounds 8m down payment by the Omanis to the succesful bidder.

With the Omanis due to place the contract today, Mr Sainsbury was facing a deadline of last night to decide whether to provide guarantees over the pounds 8m and throw a lifeline to the Wallsend yard, which called in the receivers last month.

Oman is reported to favour Swan Hunter's tender over rival bids submitted by French and Dutch yards. However, it is concerned about forfeiting the down payment should Swan Hunter close or the receivers from Price Waterhouse decide to use it to pay off creditors.

Pamela Denham, the Department of Trade and Industry's North-east regional director, has drawn up a novel scheme whereby the Government could guarantee the pounds 8m.

This proposal is now sitting on Mr Sainbury's desk. The minister is holidaying in a French farmhouse and is not due back in his office until Monday. However, he is understood to be in touch by telephone and fax.

Mr Sainsbury is said to prefer a solution whereby the financial markets underwrite the risk attached to the pounds 8m down payment. Price Waterhouse's corporate finance division is understood to have indicated this would be possible to arrange but not within the deadline imposed by the Omanis.

If Swan Hunter does not land the Omani order the receivers are expected to lay off a further 300 employees on top of the 420 sacked a week ago. About a third of those 300 are skilled designers and technicians.

Losing the Omani order and the prospect of follow-up contracts for a further eight patrol boats would deplete both Swan Hunter's workload and its skills base, making it still harder to find a buyer.

There is also a grave question mark over whether the Ministry of Defence will allow Swan Hunter to complete work on an existing order for three Type 23 frigates, with VSEL in Barrow openly pitching for the business. Vosper Thornycroft in Southampton would also be interested in the work but has not submitted a formal bid.

Stephen Byers, Labour MP for Wallsend, said last night: 'If the Government does not back this financial package it is effectively saying that it is not interested in securing shipbuilding on the Tyne. It is a key decision for Mr Sainsbury.'

A DTI spokeswoman said: 'Ministers are aware of the need for a quick decision, but we are still considering the position. I am not aware of any immediate deadline.'