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FEATURE Private fi nance

Speeding ahead: new transport links are being pushed through under the PFI

current proposals fall well short of the full rebate that MPs are calling for. He says the campaign will continue to push for ‘a much more comprehensive deal with all the major PFI providers’. He insists that with 69 MPs the campaign is ‘still in its growing phase’ and will expand in numbers and infl uence over the coming months.


2% TO BE


32 PublicFinance APRIL 2011

Of the various potential sources of ‘rebate’ for the public sector, two stand out as the most practical and productive. The fi rst is to ensure that the amount of money PFI consortiums spend on main- tenance is subject to regular reviews, and that providers are forced to identify opportunities for sharing any resulting gain with the public sector. Mainte- nance is the main function performed by PFI contractors once the buildings are completed, and is provided on a monopoly basis – by the investor compa- nies themselves – throughout the whole contractual period.

On many deals, projections of mainte- nance expenditure made when contracts were signed have proved excessive. In turn, this has meant that the annual charges being paid by public authorities are at a much higher level than is nec- essary to reimburse PFI providers for their operational costs. Currently, this surplus cash fl ows directly to investors – and there is, as yet, no way for the public sector to claw any of it back.

The other promising rebate idea relates to the PFI’s secondary market, in which equity investors sell their shares

after the risky construction period, as Carillion did with the Queen Alexandra Hospital. Amyas Morse, the head of the National Audit Offi ce, argued in a recent committee hearing that the secondary market was profi table and ‘there might be a case for [the government] to capture some of that gain’.

There is a precedent for this approach, in that PFI investors are expected to share with the public sector any wind- fall gains generated through refi nancing their bank loans. But the Treasury has long resisted this, fearing it will reduce the liquidity of equity as well as trust in the market. According to a Treasury offi - cial, equity sales are ‘something to keep an eye on’, but there is as yet no ‘active review’ in relation to gain-sharing. In fact, the Treasury has long since taken its eye off this particular ball. Its database of investors in PFI projects was last updated in February 2009 (and it was not very accurate even then). However, a record compiled by the independent European Services Strategy Unit records 222 equity transactions in the second- ary market, relating to assets valued at almost £4bn.

The compiler of that database, Dexter

Whitfi eld, claims that the average profi t realised by vendors across the market was 50.6%, and amounts to half a billion pounds overall. Whitfi eld also suggests that a great majority of equity assets bought through the secondary market are held by companies based offshore. The government seems to regard


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