Wednesday, May 16, 2007
The price of progress?
Today's Western Mail highlights the real cost of private finance schemes and their impact on the long term funding of public services in Wales. The paper features a report from the Public Accounts Committee, which lists 26 Welsh PFI schemes, ranging all the way from the Severn Crossing down to a hospital heating system.
The eventual total payments for each contract are shown to be about five times the original capital cost of each project or building:
Yesterday’s report found private profits had swollen by hundreds of millions of pounds through refinancing their PFI debts – usually after the risky construction phase – while the public sector’s gain from refinancing deals had fallen about £100m short of government predictions.
The committee warned that negotiations on PFI projects were left in the hands of local government officials who were “often painfully lacking in commercial experience” – and urged the Treasury to take final responsibility for approving sensitive refinancing deals.
Welsh PFI projects listed in the report include:
Ysgol Gyfun Cwm Rhymni and Lewis Boys’ School, Caerphilly, with a £25m capital cost and payments totalling £126m;
A £300,000 heating system at Prince Philip Hospital, Llanelli, with payments totalling about £1.5m over 15 years;
A £15m divisional HQ for North Wales Police in St Asaph, with repayments of £71m;
Lloyd George Avenue and Callaghan Square, Cardiff, with a cost of £45m and repayments of £174m;
A £12.1m office building for Denbighshire council, with repayments of £63m.
Like many politicians I believe that we should avoid PFI whenever possible. The problem is that Treasury rules put many public bodies, including the Welsh Assembly, in an impossible position. Borrowing restrictions mean that the only way that capital can be raised to finance a project is through this sort of private sector arrangement. The choice we often face is to build through PFI or abandon the project altogether.
There may well be a case that the naivety of officials adds to the cost of public private partnerships but the main argument is for a reform of the public sector comparator that applies in such cases and a more sensible approach to the public sector borrowing requirement so that capital investment is treated differently as it is on the continent.
The eventual total payments for each contract are shown to be about five times the original capital cost of each project or building:
Yesterday’s report found private profits had swollen by hundreds of millions of pounds through refinancing their PFI debts – usually after the risky construction phase – while the public sector’s gain from refinancing deals had fallen about £100m short of government predictions.
The committee warned that negotiations on PFI projects were left in the hands of local government officials who were “often painfully lacking in commercial experience” – and urged the Treasury to take final responsibility for approving sensitive refinancing deals.
Welsh PFI projects listed in the report include:
Ysgol Gyfun Cwm Rhymni and Lewis Boys’ School, Caerphilly, with a £25m capital cost and payments totalling £126m;
A £300,000 heating system at Prince Philip Hospital, Llanelli, with payments totalling about £1.5m over 15 years;
A £15m divisional HQ for North Wales Police in St Asaph, with repayments of £71m;
Lloyd George Avenue and Callaghan Square, Cardiff, with a cost of £45m and repayments of £174m;
A £12.1m office building for Denbighshire council, with repayments of £63m.
Like many politicians I believe that we should avoid PFI whenever possible. The problem is that Treasury rules put many public bodies, including the Welsh Assembly, in an impossible position. Borrowing restrictions mean that the only way that capital can be raised to finance a project is through this sort of private sector arrangement. The choice we often face is to build through PFI or abandon the project altogether.
There may well be a case that the naivety of officials adds to the cost of public private partnerships but the main argument is for a reform of the public sector comparator that applies in such cases and a more sensible approach to the public sector borrowing requirement so that capital investment is treated differently as it is on the continent.
Comments:
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Treasury rules need a total overhaul, the cases in the WM are a disgrace, shame they never came more prominent pre election. Labour westminster and in the bay ahve a lot to answer for. ts not as if the Government couldn't get a normal loan for these projects. PFI is just a licence to lose Government money. Wonder how / if the new M4 will fund itself if it even goes ahead, what is the lib dem position Peter?
# posted by 
: 5:29 PM
: 5:29 PM
I am not sure if the party has a position on the M4 but I personally oppose the extension and would expect many other members to agree with me on that. We are naturally sceptical about PFI and would want treasury rules changed.
Peter, lets be balanced shall we and include the cost implications of maintainence, risk, refurbishments, updating technolgoy et. It all adds up and results in PFI not being somke awful get rich quick scheme for evil private sector, but a pragmatic return on investment for a 25 year programme of maintainance, refurbishment and IT refresh
A little less knee jerking and a more pragmatic approach would be greatly welcomed on all sides.
A little less knee jerking and a more pragmatic approach would be greatly welcomed on all sides.
# posted by : 11:28 PM
: 11:28 PM
I dont recall referring to the 'evil private sector' in my comments. I concentrated on the impact on the public sector. I accept that if you engage with the private sector then you are seeking to transfer risk and that they will need to extract a price for that.
Civil service negotiators have been naive, due to inexperience and lack of training. Government departments have fallen back on using consultants in some cases, though one must suspect that their sympathies must be more with the private sector than government.
If PFI/PPP is to continue, civil servants and government ministers must be equipped to get best value from negotiations. Restoration of the Civil Service College, scrapped by Thatcher and Heseltine, would be one means.
- Frank Little
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If PFI/PPP is to continue, civil servants and government ministers must be equipped to get best value from negotiations. Restoration of the Civil Service College, scrapped by Thatcher and Heseltine, would be one means.
- Frank Little
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