24 September 2004
The Treasury has no intention of forcing contractors that sell off holdings in Private Finance Initiative projects to share any profits with public sector clients, one of its top mandarins has said.
Geoffrey Spence, head of the Treasury's PFI unit, has stamped on rumours that the government is planning to treat the proceeds of so-called secondary market sales in the same manner as those from refinancing deals.
Standard PFI contract terms dictate that profits from refinancing, which often occurs once a project is up and running and therefore deemed to be less risky, should be split 50:50 between private contractors and their public sector clients.
These were originally introduced in 2002 after a concerted campaign by public sector bodies and trades unions. But Spence has made clear that the Treasury regards these as being 'fundamentally different' from the disposal of shareholdings by private firms.
Officials have concluded that secondary markets sales fall within the range of standard share disposals undertaken by companies. Consequently, if a contractor finds a buyer 'because the project has been run well', it is entitled to keep all the proceeds, Spence said.
Speaking at a conference on public-private partnerships in London on September 21, he gave a clear commitment that the government would not seek to extend the rules governing refinancing to secondary markets sales.
'We as the Treasury draw a huge line in the sand,' he told delegates. 'It is inappropriate and incorrect to equate refinancing and secondary markets sales.'
The National Audit Office will shortly launch an inquiry into refinancing deals and consider whether the current arrangements are working. As a result, Spence told delegates, the distribution of windfall profits between public and private sector is likely to attract increased attention.
His comments, made just a fortnight before he leaves his post to return to the private sector, were intended to reassure PFI contractors that the Treasury is not looking to mount a raid on their profits.
But Margie Jaffe, Unison's national officer on PFI issues, cited Jarvis and Amey as examples of contractors that should not have benefited from their PFI activities.
'They have not been providing good-quality services, but they have… saved themselves financially by selling off their stakes,' she told Public Finance. 'When you have windfalls, they should go into public services.'
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