The Irish government has provoked controversy after a major U-turn means it will no longer be funding a huge road upgrade in western Northern Ireland.

The beleaguered construction industry has been left disappointed after the Irish Republic's Transport Minister Leo Varadkar said that while his government remained "politically committed to the A5" it would no longer be providing the promised £400m towards the cost of the Londonderry to Aughnacloy road upgrade.

In Northern Ireland, the Construction Employers Federation (CEF) Managing Director John Armstrong, said: "The loss of £400m of investment in infrastructure is a great disappointment to the local construction and civil engineering industry.

"The industry is already facing the most challenging trading conditions in generations and in that context this is extremely unwelcome news.

"Due to construction's economic multiplier effect this withdrawal of funding will result in a reduction in economic activity of about £1bn.

"Further to that, the failure to proceed with the A5 project will hamper longer term economic development," he added.

"It is now absolutely essential that the Northern Ireland Executive's financial contribution to this project is redirected in to other public building and civil engineering projects.

"With the worsening fiscal position in the Republic of Ireland there has been growing concern that the A5 funding would be cut," he said.

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"If the Executive has been prudent, preparations will have been made for this eventuality and we look forward to the imminent publication of that their back-up plan.

"We also are hopeful that the millions of pounds that have already been spent preparing for the delivery of the A5 scheme will not be entirely wasted. Some of the preliminary work may be useful in speeding the progress of alternative improvements to that particular transport corridor," he added.

The total cost of the 55-mile upgrade - which would create a key cross-border business route linking Dublin to the North West - was to be £850m with the Stormont Finance Minister Sammy Wilson also disappointed.

"They couldn't give a commitment between now and 2016," he said.

"Our budget only runs to 2014-15 so there's no money coming within our own budget period.

"For this budget period the road cannot be financed and cannot be built."

However, Mr Wilson said that the Stormont Executive's contribution to the A5 would now be spent elsewhere - giving some hope to the disappointed builder.

The Stormont First Minister Peter Robinson and the Deputy First Minister Martin McGuinness have also expressed their disappointment.

"The Executive will now need to immediately examine how best to reallocate the £400m that had been set aside for the project.

"This announcement will come as a considerable blow to the local construction industry, which has already suffered greatly during this downturn. It will therefore be our priority to identify projects that will ensure that construction jobs are supported." he said.

Mr McGuinness said: "Successive Irish Governments have expressed their commitment to the project and at the last meeting the Irish government committed a further £11m to the A5 and A8 projects.

"I am bitterly disappointed that Irish Government has gone back on their commitment. This is a key route for the future economic growth of the North-West and I intend to raise the matter with the Irish government at the earliest opportunity."

The Irish Government had, as part of the endorsement of the St. Andrews Agreement, agreed to provide some £400m to the route upgrade.

However, the new Capital Investment Plan by the Irish Government now confirms that the planned funding will not be provided within the Budget 2011-15 period with Dublin Ministers indicating that the greater priority was funding urgent schemes within their jurisdiction.

NI Regional Development Minister Danny Kennedy said: "This news is extremely disappointing with major implications for the A5 and A8 schemes.

"This is a commitment of the Irish Government, confirmed at the North South Ministerial Council," he concluded.

(BMcC/GK)