11 February 2005
Refinancing the first Private Finance Initiative hospital has introduced new liabilities and private sector profits have soared as a result, the National Audit Office said this week.
In its fiftieth report on the PFI, the NAO examined the operation of the contract to build and operate Dartford & Gravesham trust's Darent Valley Hospital. The hospital opened in September 2000, but in 2003, the trust's private sector partner, THC Dartford, sought to refinance the deal.
The NAO said that following this refinancing, shareholders' returns were 62% higher than anticipated when THC Dartford bid for the contract.
By increasing borrowing on better terms, shareholders were able to realise £37m immediately on the basis that they would take reduced returns later. Once these were taken into account, the net benefit of refinancing was expected to be £21m.
The trust shared in the gains – the overall contract price was reduced by £12m. In return, it accepted further risks, including extending the minimum contract period by seven years to 35 years and increased early termination penalties (of up to £46m).
Public Accounts Committee chair Edward Leigh said: 'This has been a reasonable deal for the public sector but a fantastic deal for the private companies.
'When so much of the profits are realised early on in the project, there is a concern that the private sector will not be so committed to the rest of the work. I am worried that the trust so far has been too lenient on lapses in service. It's fair enough to enjoy the golden eggs, but the goose must not be neglected.'
But Unison general secretary Dave Prentis said the report was 'proof positive that companies are making obscene profits from PFI deals'.
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