Watchdog brands 60 per cent profits on PFI scheme as unacceptable
Some of Britain's biggest investors in the private finance initiative were yesterday condemned as "the unacceptable face of capitalism" by parliament's public spending watchdog. John Laing, Innisfree, 3i, Barclays Infrastructure and Serco were accused of taking gains "unacceptable even for an early PFI deal" from a refinancing of the £158m Norfolk and Norwich Hospital.
Norfolk and Norwich is one 47 refinancings of schools, hospitals and other PFI projects up to February this year that in some cases have seen rates of return double, triple, or - in this case - almost quadruple compared with the expected returns just before refinancing.
The five, who make up the Octagon consortium that built and runs the hospital, made gains of £95m but left the hospital with extra potential liabilities of up to £257m should it need to terminate the contract early, according to the Commons Public Accounts Committee.
The gains came from borrowing more at lower rates of interest over a much longer period than the original deal and allowed Octagon to more than triple its original expected internal rate of return from 19 per cent to 60 per cent.
As a consequence, the Norfolk and Norwich NHS Trust is committed to the contract for 39 years rather than 34 even though the committee noted that it was "impossible to predict that far in advance the nature and extent of services that may be needed." If the contract were terminated early, the hospital might have to pay up to £257m more.
The refinancing produced gains of £129m. The NHS Trust, which had no contractual right to a share, received £34m under a voluntary agreement on refinancings negotiated by the Treasury. However, to receive even that, the trust accepted liability for all the £106m in extra borrowing that the consortium undertook.
"This is taxpayers' money," Edward Leigh, the committee chairman said, "and the risk of this large liability was incurred essentially so that investors could have fatter returns".
The deal is "the unacceptable face of capitalism," Mr Leigh said. "It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector."
Such deals, however, are being replaced by sales of the equity in projects through the so-called secondary market.
Last month, however, the National Audit Office called for more figures on gains from such transactions to be published.
http://news.ft.com/cms/s/eb886818-da40-11da-b7de-0000779e2340.html
Norfolk and Norwich is one 47 refinancings of schools, hospitals and other PFI projects up to February this year that in some cases have seen rates of return double, triple, or - in this case - almost quadruple compared with the expected returns just before refinancing.
The five, who make up the Octagon consortium that built and runs the hospital, made gains of £95m but left the hospital with extra potential liabilities of up to £257m should it need to terminate the contract early, according to the Commons Public Accounts Committee.
The gains came from borrowing more at lower rates of interest over a much longer period than the original deal and allowed Octagon to more than triple its original expected internal rate of return from 19 per cent to 60 per cent.
As a consequence, the Norfolk and Norwich NHS Trust is committed to the contract for 39 years rather than 34 even though the committee noted that it was "impossible to predict that far in advance the nature and extent of services that may be needed." If the contract were terminated early, the hospital might have to pay up to £257m more.
The refinancing produced gains of £129m. The NHS Trust, which had no contractual right to a share, received £34m under a voluntary agreement on refinancings negotiated by the Treasury. However, to receive even that, the trust accepted liability for all the £106m in extra borrowing that the consortium undertook.
"This is taxpayers' money," Edward Leigh, the committee chairman said, "and the risk of this large liability was incurred essentially so that investors could have fatter returns".
The deal is "the unacceptable face of capitalism," Mr Leigh said. "It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector."
Such deals, however, are being replaced by sales of the equity in projects through the so-called secondary market.
Last month, however, the National Audit Office called for more figures on gains from such transactions to be published.
http://news.ft.com/cms/s/eb886818-da40-11da-b7de-0000779e2340.html
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