A recent article in The Observer attacked refinancing as 'robbery of the public' by the private sector.94 The article detailed some PFI projects where the authors believed refinancing deals were "currently being worked on" which included:
• The £133m, 423-bed new Dartford & Gravesham hospital in Kent, developed by Carillion, United Medical Enterprises and Innisfree, a specialist PFI investment fund. Sources say PWC has been appointed to lead the deal, and that the windfall gain is likely to be around £20m. The gain is made on reducing the margin on the senior debt, worth £108m, and gearing up the financing structure by reducing the 'cushion' of second-tier debt and equity. There is no provision for a public sector clawback.
• A similar process is said to be under way at another hospital, the £67.5m, 424-bed Hairmyres in East Kilbride, being run by contractor Kier and Innisfree.
• The Bridgend prison project in South Wales will see WS Atkins, Securicor and construction giant Skanska scoop close to £5m by refinancing a £77.5m loan at a 4 per cent cheaper rate.
• Five prisons run by Premier Prison Services - a joint venture between controversial US security giant Wackenhut and facilities management outfit Serco - is thought to have yielded a £7m windfall by bundling together separate loans totalling £185m.
• The £241m scheme to redevelop an 11-building estate owned by the Inland Revenue in Newcastle stands to make millions for the consortium involved, which includes Amec and Interserve. The main debt - £168m loan arranged by Royal Bank of Scotland - is being refinanced, and the increased returns are being spread over the life of the contract.
• Road projects are also involved. Investment banker ABN Amro is organising refinancing of the pounds 268m link road between the A1 and M1 near Leeds, Yorkshire. The 18.5-year term of the loan is likely to remain, but the margin is likely to be reduced from between 130 to 140 basis points (1.3-1.4 per cent) to 85. A similar deal was completed earlier this year on the A19 road, built by the Autolink consortium. Here the Highways Agency negotiated a 30 per cent clawback of the gain for taxpayers.
• In the schools sector, Jarvis has refinanced the 1,060-place Colfox secondary school in Dorset in 1999, and the Barnhill School in Hillingdon, west London.
The NAO has suggested that the further refinancing of PFI projects is likely to occur in the future to the benefit of shareholders. They have suggested that:
There can be important consequences for departments arising from refinancings, and departments should consider what provisions they should make to share in some of the financial gains and whether their consent should be required before a refinancing can proceed.95
OGC has commissioned Partnerships UK to draft new guidance on the refinancing of PFI projects that will more comprehensively protect the public interest. At present, the draft revised general guidance on the standardisation of PFI contracts has been circulated to departments for public sector consultation. Once Partnerships UK has considered the public sector's comments, a revised draft will go out for private sector consultation. A final version of the document is likely to be ready for publication early in 2002.
_____________________________________________________________
94 Oliver Morgan and Nick Mathiason, "PFI's bounty hunters: Firms developing schools and prisons pocket millions as the 'risk' factor dwindles", The Observer, 8 July 2001
95 NAO, The refinancing of the Fazakerley PFI, HC 584 Session 1999-2000, 29 June 2000