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Top e-government news, updated daily, and regular features from the top people in the public sector.
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| Call for details on investors' PFI gains |
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More information should be published on the gains that investors are making on private finance initiative projects, says parliament's public spending watchdog.
In a report, the National Audit Office said there was good information to show that money made from refinancing PFI projects had seen the public sector so far receive just less than 30 per cent of the profits.
But there was much less information about the money being made from equity sales in projects once they were running. This was despite the fact that the original investors had changed in 40 per cent of the projects surveyed.
Profits and losses were not disclosed because the contract was between two private sector parties, even though there might well be benefits to the public sector from the stakes in PFI projects becoming marketable, said the watchdog.
The sale of equity could provide funds for future PFI investments. In addition, as the supply of equity in-creased its cost should fall, improving the pricing of future PFI deals.
The fact remained that the position was not transparent, said the NAO. More information was needed "to provide a better understanding of the dynamics of PFI equity investment" and of the risks and rewards that the private sector faced.
The Treasury should discuss with investors what additional information they could provide, the report said.
Its call came as the audit office disclosed that the government had secured gains of £137m from the refinancing of PFI deals. Half of these, £72m, had come from a voluntary agreement that the public sector would take 30 per cent of the profits on early deals signed up to 2002, after which there was usually a contractual agreement to a 50 per cent share.
The £72m is well below the Office of Government Commerce's estimate that the voluntary code could produce gains of £175 to £200m for the public sector, chiefly because few refinancings have taken place since 2004.
The failure to achieve expected gains has resulted in NAO warnings that refinancings, which can produce huge early gains for the equity investors, can carry risks for the public sector.
They have tended to lengthen the contract and increase the debt, with the penalties greater if it turns out that a new hospital or school is not needed before the new 35-year contracts run out.
As a result, the private sector was now less certain that the public sector would agree to a refinancing, while the tighter terms and lower interest rates involved in later deals left less room for such deals, said the NAO.
Most early deals assumed a rate of return for equity investors of 15 to 17 per cent, but in a fifth of the projects examined that had jumped to 50 per cent after refinancing and in two cases to more than 70 per cent.
The NAO said it was too early to say whether service quality would fall once investors had taken such big, early, gains out of the project. There was no evidence yet that it did, and the debt providers retained an interest in ensuring that the services were good enough for them to be paid. But the theoretical risks remained. |
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