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P&I Team Briefings Home | Responses | PFI Index | Policy Guide
 

 

A briefing on the Private Finance Initiative
August 2005, issued by UNISONScotland for branches

3.5 x cost = 'good value' for airport buyout

The saga of Inverness Airport has demonstrated yet again the financial folly of PFI after the Scottish Executive agreed to buy out the contract for an estimated £25m.

Taxpayers will be paying more than 3.5 times the £9.6m cost of building the new terminal, as the publicly owned Highlands and Islands Airports (HIAL) has already paid £8.5m to the developers.

Nicol Stephen MSP, then transport minister, announced in mid-June that a deal had been agreed in principle with the owner Infrastructure Investors (I2).

He said the buyout represented "good value for money". This was because the controversial PFI deal charged HIAL £3 for every passenger-and passenger numbers have risen dramatically with the advent of low cost flights.

The contract had 19 years to run and passenger numbers at Inverness have already risen from 337,000 in 1998 to 700,000, with further growth predicted.

Mr Stephen added: "It would be even more expensive to continue to fund this deal."

It was envisaged that the cost of passenger charges would be offset by a rise in landing charges, but the growth of low cost no frills carriers means airport operators now rely more on retail concession and parking income. In Inverness this goes to the contractor.

I2 is owned by Barclays Bank and Societe Generale.

 

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Bridging The Gap

In December Mr Stephen ended the controversial tolls on the Skye Bridge after agreeing to pay £27m to buy out that contract.

The Executive said if the buyout did not happen, it would need to provide £18m in subsidy over the contract's remaining eight years and that tolls would cost drivers a further £20m.

Campaigners demanded a public inquiry, arguing that the bridge had cost the public purse over £90m, when the developers said it cost £25m to build.

The Skye Bridge was the UK's first PFI contract and the toll charges were the highest in Europe.

Despite conceding that neither Inverness Airport, nor the Skye Bridge PFI schemes had provided value for money, the minister said that PFI would continue.

 

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Labour leaders face PFI quiz

UNISON is to intensify campaigning against PFI and will make it a key question to Labour leadership candidates when Tony Blair steps down - said General Secretary, Dave Prentis.

He hit out against PFI at the UNISON annual conference in Glasgow.

He accused government ministers of only listening to firms like Balfour Beatty, which had invested £180m in PFI projects - now worth £600m, and Carillion, whose £29m PFI investment is now valued at £100m.

Dave told journalists that candidates for the Labour leadership would be questioned by UNISON on three key tests: their views on PFI and the introduction of competition and markets in public services.

UNISON, along with other unions, is part of the electoral college which will elect the next leader.

Mr Prentis said: "We are the biggest affiliated union to the Labour party. We play a very big role in the formulation of policy.

"We have established a clear policy on PFI and we will want to know the position of any prospective leader before we cast our vote."

 

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Another call for ERI enquiry

The Scottish Executive should launch an inquiry into the controversial Edinburgh Royal Infirmary PFI scheme.

That is one of the calls from Edinburgh City Council's community services scrutiny panel in a report which found planning and development failures and made 12 recommendations.

Councillors said: "The new hospital is regarded as the flagship of PFI ventures, yet there still exist serious concerns about the underlying planning assumptions and financial constraints. In particular, the debates about the overall capacity of the ERI, linked with the (non) provision of 'step-down' facilities, bed numbers and delayed discharge."

They concluded there had been a failure to deliver the Full Business Case on which the new hospital was based, particularly the provision of community based services. Original assumptions on bed numbers didn't provide sufficient flexibility to cope with changes, including falling numbers of care home places and other pressures causing delayed discharge.

Despite this, Consort Healthcare, operators of the £184m ERI, has asked for an extra £1.1m a year following a benchmarking exercise. The payment is on top of the £7.5m annual fee it receives from NHS Lothian for services including portering and security and patient movement.

NHS Lothian is fighting the claim, worth £30m over the life of the contract. Health managers went to the Court of Session in May to block the demand and may return there if negotiations fail.

UNISON's Tom Waterson, branch chairman for Lothian Health, said if Consort win it would prove there has been "no risk transfer whatsover" to the private sector.

 

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£5.7bn cost of Scottish deals

PFI contracts in Scotland are currently worth £5.7 billion.

The Scottish Executive's Financial Partnerships Unit website lists over £2.7b worth of done deals (signed and operational), along with £3b worth of future deals.

The site details the "substantial Public Private Partnerships investment within Scotland" by status, sector and type, with local authorities, water & sewerage, then health by far the largest sectors, within done deals.

The capital value of the done deals shows £1.2b worth of local authority projects, with water & sewerage projects worth £654m and health projects totalling almost £600m.

There are 26 local authority projects classed as future deals, worth a total of nearly £2b, of which £1.88b are for schools. A further £950m is the capital value of the 22 health projects which are future deals.

Full information is on the website at http://www.scotland.gov.uk/Topics/Government/Finance/18232/13368

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Scots maintain opposition to private profits from public services

A new survey has confirmed that Scots are overwhelmingly against schools and hospitals being run by private companies for profit.

The YouGov poll for UNISON found that 89% of Scots believe public services such as hospitals and schools should not be run for profit.

And 90% agreed that in principle public services should be run by the government or local authorities, not private companies.

This follows similar figures in a poll after the previous General Election.

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Scottish Minister won't allow fair comparisons – despite the 'wheels falling off' PFI

THE Scottish Executive will not follow John Prescott's lead in reforming PFI grants to councils to create a fairer 'level playing field' between PFI and conventional capital investment.

UNISON wrote to Finance Minister Tom McCabe to ask whether he planned to hold a consultation on the issue similar to one run south of the border last year by the Office of the Deputy Prime Minister.

Mr McCabe said that there are 'no immediate plans' to review the system of funding local authority PPP projects.

Dave Watson, UNISON Scottish Organiser, said: "If PFI is so wonderful why are ministers so afraid of creating a level playing field to enable meaningful value for money assessments to be carried out?"

Observers are beginning to note increasingly different approaches between England & Wales and Scotland, as PFI failures mount up north and south of the border.

The Sunday Herald on 10 July said in a business leader column "the wheels are beginning to come off Private Finance Initiatives. What was once one of the cornerstones of New Labour's conversion to market solutions in the 1990s is now increasingly being seen as inflexible, cumbersome and overly expensive."

The newspaper's business pages featured an article which highlighted reasons why UK ministers may be cooling towards PFI, including the ruling by the Office for National Statistics that capital spending under PFI will have to be shown in the public sector's net debt figures.

Financial Editor Ian Fraser asked: "Do all these signals mean that Tony Blair's government has fallen out of love with PFI?"

But for Scotland he concluded that: "Despite the problems and views of some Westminster ministers, the enthusiasm of First Minister Jack McConnell and Finance Minister Tom McCabe for PFI/PPP shows little sign of abating."

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Fife schools to cost four times build cost.

Fife Council schools PFI could cost the council £161m for schools which cost only £40m to build. That is the conclusion of a UNISON analysis of the Full Business Case (FBC) for the Fife PPP1 project covering Dunfermline schools.

The financial justification for PFI schemes is based on a so-called 'value for money' exercise in the FBC which compares the likely PFI costs with a notional Public Sector Comparator (PSC).

UNISON looked at the calculations in the FBC and found that the PSC is £64.8m, while the cost of the PFI is £68.1m. So the PFI is costing taxpayers £3.275m more than if it was built using conventional methods.

The PSC has been 'adjusted' to £73.5m by adding in a 'risk transfer' figure of £8.6m. However, thisfigure is entirely speculative, and the very real operational risks - over 25 years - still fall on the council. These include changes to educational requirements, legislation and demand (pupil numbers).

The contractors' alleged risks are almost all related to construction, something which would be built into a conventional contract anyway. They will almost certainly look at refinancing the deal after a few years, pocketing a further profit, and this has been anticipated in s27 of the contract.

If the FBC revenue figures for the unitary charge of £6.443m are sustained into the contract then the council will pay the contractor (at today's prices) around £161m for schools which cost only £40m to build.

The Scottish Executive is also subsidising the scheme in the first full year with £3.68m in revenue costs.

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Little stories that add up to big costs for the public

LIFTS

Legislation flagged up in the last Private Finance Illusion has been passed by MSPs. The Smoking, Health and Social Care (Scotland) Bill won most attention for the ban on smoking in public places, but it also included provision for joint ventures. This means Scotland will soon see Local Improvement Finance Trusts (LIFTs) bringing private investment into primary care and joint premises developments, such as GP surgeries. LIFT is for smaller-scale joint ventures than PFI schemes and the law change will allow ministers to form, or take part in forming, companies which would provide facilities such as goods, premises, equipment, vehicles etc to NHS bodies.

And then there were 10

ARGYLL and Bute's £75m education project is now to build only 10 schools, seven of which will be on joint campuses. The council had originally planned the project to cover 29 schools, but this was cut by 12 last summer and has now been cut by a further seven. The council said it needed to obtain value for money and the geography was a problem with schools spread across a wide area."

Tanks, but no tanks

The Ministry of Defence has pulled the plug on a planned £1billion PFI contract, saying it did not provide acceptable value for money. Defence procurement minister Lord Drayson said the 30-year contract with Landmark Training Consortium to provide training on tanks and armoured vehicles would not go ahead. Instead more "conventional procurement strategies" will be used.

Paddington bare?

A planned PFI hospital in Paddington has been scrapped after £14m of public money had already been spent. The costs included fees of £7.8m to private companies. An investigation will try to establish why so much time, money and effort was wasted.

Chicken Run

GEORGE MONBIOT, environmental activist and writer, comments regularly on the PFI financial scandals. He wrote in the Guardian in June: "How much longer can this farce carry on? Everywhere the chickens released by the government's private finance initiative are not so much coming home to roost as crashing into the henhouse and sliding down the wall in a heap of blood and feathers."

Relying on senior staff

Reliance - which has the controversial private contract to transport Scottish prisoners to and from court - has seen five senior staff quit, with reports of likely further resignations. Campbell O'Connell, operations director, and a former police chief superintendent, will go in September. He set up the firm's prisoner escort system, which was widely criticised after a number of high-profile escapes. Four other senior staff have also resigned.

 

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Water PFI burden means increased threat to safety

Scotland's water industry is being forced to make efficiency savings which are unachievable without serious risks to the safety of staff and the public. UNISON has warned that the financial strain is not being helped by the "massive burden" of PFI schemes.

Dave Watson, UNISON's Scottish Organiser for Utilities, said that the 'magic circle' of proposed investment, with little or no charge increases, showed that the Water Industry Commissioner is "wedded to an economic theory that has little to do with reality. Scottish Water inherited a massive burden of costly PFI schemes on 25-30 year contracts . They are contracted to pay contractors £112m per year (for 30 years), for assets that cost only £549m to build."

The WIC has said that the contracts inherited by Scottish Water were good value for money when they were concluded (between 1996 and 2001), but that "improvements in Scottish Water's performance have made it less certain that the PPP contracts represent value for money to customers today."

He has recommended that PFI operations are brought back in-house.

For more information see 'It's Scotland's Water!' on the UNISONScotland website http://www.unison-scotland.org.uk/water/scotlandswater.html

 

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PFI UPDATE

UNISON's campaign against PFI in Scotland is co-ordinated by Scottish Organiser, Dave Watson.

If you have news of PFI developments in your area, Dave would like to hear from you. He is based at
UNISON House,
14, West Campbell Street,
Glasgow, G2 6RX.
Tel. Tel. 0845 355 0845.
Fax. 0141 331 1203
E-mail d.watson@unison.co.uk