Scottish investment plan given £1bn boost

1 May 14
International investors look to be taking Scotland’s increasingly fractious independence debate in their stride, according to the Scottish Futures Trust.

By Keith Aitken in Edinburgh | 1 May 2014

International investors look to be taking Scotland’s increasingly fractious independence debate in their stride, according to the Scottish Futures Trust.

The trust, set up to develop alternatives to the Private Finance Initiative model, is non-partisan, but finance director Peter Reekie told Public Finance that interest in Scottish infrastructure investment was sky-high among Scottish, UK and international institutions.

His comments came as Finance Secretary John Swinney announced a £1bn expansion in the Scottish Government’s infrastructure programme. This takes the pot of money to be invested through the Non-Profit Distributing (NPD) model pioneered by the trust to £3.58bn. The trust will now work up business cases with public bodies for a steady stream of capital projects through to 2019/20.

Swinney said the extra funding capacity would provide the construction

sector with the long-term certainty of a continuing pipeline of projects. ‘Every additional £100m of construction activity is estimated to support more than 1,300 jobs,’ he added.

Reekie pointed to recent commitments from German, Spanish and Australian institutions and from the European Investment Bank, which has committed £600m to the Scottish NPD programme.

‘That’s a big share of the total EIB allocation that’s coming to Scotland, because we have a pipeline of projects,’ he said. ‘These programmes are a fantastic example of the big international players being very, very interested in

the well-constructed projects that are in the pipeline and in the deals that are being done.’

He highlighted the trust’s breadth of activity, noting that it had become a centre of expertise in public sector infrastructure working. ‘Having the knowledge to show that we can do different things effectively is key, and we

have taken on a whole batch of new things – even though we’re only five years old as an organisation,’ he said.

In contrast to the PFI route, NPD allows the Scottish Government to borrow cash from private sector institutions for long-term repayment at capped levels of return, without dividend-bearing equity and with an enhanced stakeholder role in managing projects. It has been used increasingly to fund Scottish infrastructure projects, such as the £228.5m hospital for sick children in Edinburgh.

‘We have very competitive bids from funders for financing these projects,’ Reekie said, noting that it had taken less than two years to get the children’s hospital from proposal to construction.

Alongside NDP, the trust leads a Scotland-wide community investment initiative called the Hub. Through five regional HubCos it brings public sector consortiums together with private sector development partners, bundling smaller projects to cut costs and reach sufficient scale to attract institutional investors.

The pipeline of work through the Hub is now worth some £2bn, and Reekie said that 77% of the project value was going to smaller, often local, contractors. The trust is piloting a project bank account approach to ensure faster payment to sub-contractors.

It was an example, he said, of the SFT’s ability to innovate, and to release innovation in partners, by managing risk better and by working closely with individuals within partner organisations.

‘Institutional slowness to react can mean that it’s hard for people to change things where they are,’ Reekie said. ‘What we do is to create change and enable people to do things differently.’


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