15 December 2006
Private Finance Initiative investors who sell shares in their equity should be forced to split the profits of those share deals with the public purse, MPs have told the Treasury.
The demand came after last week's Pre-Budget Report revealed that over the next 25 years, the public sector will pay more than £160bn in annual PFI payments for £46bn worth of private sector investment.
PFI investors can make additional profits by refinancing their initial borrowing. MPs on the Commons Public Accounts Committee heard that in recent cases such as the Bromley Hospital and Norfolk and Norwich Hospital PFIs, investors had used refinancing to increase their rates of return from around 16% to as much as 71%.
Acting PAC chair Alan Williams called such gains 'astonishing' and queried them with John Kingham, managing director of the Treasury's Finance and Industry Directorate.
Kingham said: 'It's true some have made significant profits, but others have lost.' He added that, following pressure from the PAC and National Audit Office, voluntary and contractual clauses meant that up to 50% of the profit gained from PFI refinancing was now shared with the public purse.
But in April the NAO found that public sector returns from such clauses were up to £60m less than the £200m expected.
Investors were now looking to add to their profits by selling shares in their investments, and MPs suggested this was a deliberate ploy to avoid sharing refinancing gains.
As many as 40% of PFI projects had been subject to share dealing already and Richard Abadie, head of PFI at the Treasury, told the committee that one major PFI investor, Carillion, had netted £46m profit from share deals on £26m worth of initial investment.
Labour MP Sadiq Khan said: 'If it was right the public sector received a share of any profits gained from refinancing, is it not right to move the goalposts again and for the same to happen with equity sales?'
Kingham said it was not. Unlike refinancing, share dealings did not change the underlying contractual rights and obligations of PFI projects.
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