2.31 In PFI deals, risks are greatest during the construction phase and reduce considerably thereafter as the project moves into its operational phase. For this reason, it is often possible, post-construction, for private sector consortia to negotiate more favourable financial terms with their lenders which take account of the reduced risk. The Service's concession agreement with Consul did not include any clauses covering the situation where Consul would refinance the deal. This is not surprising since, at the time of the Laganside Courts procurement, there had been no specific guidance on the issue of refinancing and why the public sector should be concerned to share in refinancing gains.
2.32 The Office for Government Commerce (OGC) has subsequently introduced new guidance on the issue of refinancing. OGC's revised guidance on standardisation of PFI contracts seeks to encourage the open and above-board refinancing of PFI deals. For new deals, all gains made through refinancing should be shared on a 50/50 basis. For older deals, such as Laganside Courts, where there is no specific refinancing clause, OGC expect contractors to sign up to a voluntary agreement to allocate 30 per cent of any refinancing gains to the public sector.
2.33 The concession agreement between Consul and the Service is based on a 13.7 per cent return on equity and subordinated debt and a fixed interest rate on senior debt of 7 percent a year. Given the reduction in risk associated with the project, there may be some scope for Consul to refinance the deal. However, the Service and its financial advisers believe that the deal was tightly negotiated and, as currently structured, the opportunities for a refinancing appear limited. An initial meeting has taken place between the parties and Consul may develop a proposal on refinancing for the Service's consideration.