Private Finance Initiative RIP? Ben Prynn 9 July

Transcription

1 Private Finance Initiative RIP? Ben Prynn 9 July

2 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 2

3 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 3

4 Popular Punchbag PFI: Persistence of a Flawed Idea The PFI building boom will hang round the neck of our public services for many decades to come The Guardian Private Finance Initiative: where did all go wrong? The debt burden caused by Private Finance Inititative is preventing 22 NHS trusts from balancing their books. So how did it come to this? Hospitals are facing closure because they cannot pay debts incurred on expensive PFI deals Daily Telegraph 4

5 PFI Timeline and Political Ownership Launched by Norman Lamont in 1992 Reviewed by New Labour in 1997 but retained as delivery model for: Hospital programme Building Schools for the Future Reviewed and replaced by coalition government in

6 PFI Definition and Usage A method which uses private sector capacity and public resources in order to deliver public sector infrastructure and/or services according to a specification defined by the public sector (Wikipedia) [ There are 717 signed PFI projects of which 648 are operational The total capital costs of current PFI projects is c 55bn The projected capital spending by the private sector under PFI contracts is 2.4bn (in this is expected to be 1.4bn) PFI unitary charge payments are expected to total 9.3bn in Source: HMT (PFI Projects Summary data as at March 2012)

7 PFI use in infrastructure procurement Number of projects reaching financial close and total capital costs incurred for current projects Source: HMT (PFI Projects Summary data as at March 2012)

8 Typical Financing Structure Output Specification Insurance Only Residual Risk Transfer Lenders Public Sector Entity Central, Regional or Local Government Authority/NHS Trust 25 year Service Agreement SPV Special Purpose Vehicle Company Financial Providers 90% 10% Construction Contract Facility Services Agreement Shareholders Contractor FM Provider Defined Risk Transfer Financial Investor 8 UNCLASSIFIED

9 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 9

10 Accounting for PFI SSAP 21 IFRIC 12 Treasury Guidance Note FRS 5 10

11 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 11

12 VfM Tests Were Not Robust 12

13 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 13

14 Typical Financing Structure Output Specification Insurance Only Residual Risk Transfer Lenders Public Sector Entity Central, Regional or Local Government Authority/NHS Trust 25 year Service Agreement SPV Special Purpose Vehicle Company Financial Providers 90% 10% Construction Contract Facility Services Agreement Shareholders Contractor FM Provider Defined Risk Transfer Financial Investor 14 UNCLASSIFIED

15 Agenda What is PFI? Was it an accounting trick? Was is value for money? Did it transfer risk? Was it procured competently? What is the legacy? Questions 15

16 Costly Procurement Not Unique to PFI Carrying out procurement in the UK costs over twice as much as in France. This is wrong from every point of view Francis Maude MP, as reported in the Financial Times (1 June 2012)

17 PPP procurement times a comparative case study Source: Affinitext/PPP online

18 PFI Procurement no Different from Other Forms of Procurement Political leadership and buy-in Strong public sector client Solution oriented project team

19 PFI programme case study : Waste Infrastructure Delivery Programme (WIDP) Established to support and accelerate investment in large-scale infrastructure required to treat residual waste Delivery team of 25 advisers with expertise in law, finance, planning, waste management, project management, commercial and negotiations Programme managed allocation of 2bn PFI Credits to 32 different local authority projects WIDP provided projects with: Written guidance including a standard contract hands-on Transactor support Network events to encourage projects to talk to each other

20 WIDP success factors Long term consistency of purpose Constructive collaboration between central and local government Assembly of highly skilled team from within government (Defra, HM Treasury) public sector agencies (PUK, LP)

21 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 21

22 PFI Legacy New generation of hospitals, schools etc Complex contracts to be managed International export market PF2 OR 22

23 Many New Facilities Now Built UNCLASSIFIED 23

24 Benchmarking Contract Management Challenges Maintenance and Surveys Equipment Refinancing Staff and pensions Authority Change Market Testing Contractor Changes Insurance Reviews Maintaining Contract Management Manual 24

25 International Export Market 25 UNCLASSIFIED Institutional Setup / Policy Support Programme / Project / QA Support Training Programmes - PPP Foundation Class 120 alumni from 30 countries - Tailor-made programmes Support to UK Government Departments / FCO, UKTI, DfID

26 PF 2 New Improved Model Soft Facilities management services (e.g. cleaning/catering ) to be excluded for scope of services Greater proportion of equity funding with the government expected to take a stake and institutional investors encouraged to take part Procurement guillotine - 18 months maximum between tender and preferred bidder stage Annual reports to be published on all projects where government is a shareholder, with the private sector to document forecast and actual return on equity investment 26

27 Agenda What is PFI? Was it an accounting trick? Was it value for money? Did it transfer risk? Was it a sensible process? What is the legacy? Questions 27