Q81 Mr Bacon: Which were the ones you were talking about?
Charles Lloyd: There was a Cornwall Schools Project and something called the Defence Animal Centre, both terminated in 2009.
Q82 Mr Bacon: When they were terminated, why were they terminated?
Charles Lloyd: They were terminated because the performance of the private sector was unsatisfactory.
Q83 Mr Bacon: Right. Okay. So they weren't terminated because in some way the authority failed to make its payments, which would be a good reason.
Charles Lloyd: Absolutely not. No.
Q84 Mr Bacon: I remember we looked at it on this Committee, both the National Physical Laboratory years ago and the joint services college in Shrivenham, where Laing construction decided to build it on a swamp, except they didn't know it was a swamp and indeed they went out of business and had to be bought. That is a different kind of risk; it is an operational risk. Mr Swales is talking about the finance risk and indeed the finance risk is very low, and what we are still interested in-I've always been interested in this-is whether we can prise away the finance risk. One of the first PFI deals we looked at when I was on this Committee was the competition for financing the Treasury building PFI, which was the result of an NAO Report. I see Mr Finlay nodding. The report concluded, unsurprisingly, that if you have a competition for the finance you get a better rate than if you don't. 300 basis points is quite a lot in financing terms, when you consider that we are really talking about near gilt.
Charles Lloyd: Can I make one point on risk? Although the risk of the authority or the Government defaulting on the loan is very low, the Government will only pay what they are due to pay under the contract, and it is the performance under the contract that matters. In those two examples I gave, the banks-not withstanding they got their payments- had to write off significant amounts of their loans because the performance of the business they had lent to was unsatisfactory. So there is risk on this finance: it is not a credit risk; it is a performance risk.
Andy Rose: Can I come back? The long-term fixed-rate investors are very sensitive to the view of the rating agencies-
Q85 Mr Bacon: We know how good they are, don't we?
Andy Rose: I had the feeling you might say that. They are very sensitive, particularly when they are the pension trustees and people like that. The reality is that when the rating agencies look at these long-term transactions they certainly do not look at this as no-risk transactions. They do look at these as quite considerable risk because these are very complex. As you said, there is performance risk and quite a high degree of gearing in-
Q86 Mr Bacon: Certainly, and I think I'm right in saying there were AAA-rated monoline insurers that were basically getting into trouble, so-
Andy Rose: Absolutely. That was the model from 1997 to 2007, as far as I'm aware. All the PFI transactions done in the capital markets were with the benefit of what was then, as you suggest, a AAA rating from the monoline insurers.
Q87 Mr Bacon: Going back to the EIB point, which I wanted to ask earlier, why then did you not take more advantage of this flight to quality? Mr Lloyd said there weren't enough transactors. I take it you mean corporate finance professionals, project professionals, who could run these deals? Why didn't you, because-you're back in PwC now I think-you were yourself a secondee, your predecessor as Head of PFI Policy at the Treasury was from Deloitte; he was a secondee? His predecessor, Mr Abadie, was also a secondee from PricewaterhouseCoopers. Why didn't you guys say to the EIB, "I know, we know lots of these project professionals. Why don't you take 10, 15, 20 or 25 of them, second them into the EIB for a bit, run more deals"-because you've said the number of transactors was the limit-"until we get things settled down?" Then you can go back to the private sector and take advantage of the genuine quasi-sovereign ratings that the EIB was able to get for raising its own funds. Couldn't you have done more of that?
Charles Lloyd: We did some of that. Speaking for PwC, we seconded people into the European Investment Bank at that time. I think it's really a question for the EIB about the extent to which they are prepared to-
Q88 Mr Bacon: We are a shareholder. I was actually talking about HMG. Wasn't HMG prodding the European-I'm sorry about all these three-letter acronyms-but wasn't HMG prodding EIB and saying, "Look, we're a shareholder in your bank; why don't you get more people from places like PwC?" Were you doing that, Mr Hudson? Andrew Hudson: I wasn't. Could we have done more of that? I don't know.
Q89 Mr Bacon: Mr Lloyd was doing it. That's because he wanted to keep the deal flow going.
Andrew Hudson: Sorry, I'm thinking-well, indeed.
Q90 Mr Bacon: You wanted to keep the deal flow going as well, so why didn't you do it?
Andrew Hudson: I think we-