30 June 2000
Altcourse, with 700 inmates, is managed by a consortium comprising Group 4 and Tarmac. It negotiated a refinancing deal with lenders based on the fact that the prison has operated effectively since it opened in 1997 and risks have become fewer.
Shareholders in the consortium will benefit by an expected £10.7m, of which £1m will return to the Prison Service.
A report on the issue by the National Audit Office points out that further refinancing of PFI contracts is likely to occur. It says that government departments should consider what provision they should make to share in some of the financial gains.
At Altcourse, the original contract did not state that the Prison Service would have a right to a share of the benefits of any future refinancing. But it did require the service's consent for changes which could increase liabilities if the contract were terminated early.
This persuaded the consortium that it should seek a deal with the Prison Service. It made initial offers of £100,000 and £300,000 before the final settlement was agreed.
'There is a message here to departments, that they really do need to think about refinancing at the outset,' said NAO Assistant auditor general Jeremy Colman.
He said that Treasury guidance on refinancing needed to be 'amplified' to help departments. 'The effects of that will be to bring refinancing clauses into contracts more often than they are now.'
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