Q21 Mr Williams: They were so simple that the National Audit Office tells us that contract variations process turned out to be time consuming and overly complicated. Perhaps you did not notice that.
Mr Smith: That is not the same thing as saying that the contract variations were undue or somehow wrong or somehow led to increased costs, because they did not.
Q22 Mr Williams: Let us move on then to the financial side. We are told that the bid also included a provision to restrict the return to shareholders to 30%. That is correct, is it? Yes or no.
Mr Smith: Yes.
Q23 Mr Williams: In previous PFI projects, 16% has been seen to be a more than healthy return on a safe project and yet here, you are conceding 30%. This is not just extravagant in the context of what is an ultra safe project, it is actually almost usurious, in that it would give re-financing in just over three years. That is venture capital spending, is it not?
Mr Smith: There is no suggestion in the Report that our partner got a 30% return. It talks about putting an absolute cap on the amount of return they could get. A big difference; a very big difference.
Q24 Mr Williams: So what is the percentage?
Mr Smith: We would need to work it out precisely.
Q25 Mr Williams: I would have thought you would do that, would you not? Since it is known that 16% is the going rate for such projects, surely you know the figure?
Mr Smith: Let us talk about the re-financing. This is a £321 million re-financing where I think Land Securities' profit was £23 million out of £321 million. So that gives a feel for what the actual return was and the Report puts a ceiling on it, but it does not give an actual return of the 30%.
Q26 Mr Williams: But you should be able to tell us what the rate of return is.
Mr Smith: I have just told you: £23 million on £321 million.
Q27 Mr Williams: That is over the whole lifetime? C&AG, do you agree with those figures?
Sir John Bourn: Yes we do.
Q28 Mr Williams: But what about the 30%, how did that enter into the deal?
Sir John Bourn: It entered into it as the possibility that might have been achieved.
Q29 Mr Williams: Which would have been unsatisfactory from the licence payers' point of view, would it not?
Sir John Bourn: It certainly would have been higher than the generality of PFI projects.
Q30 Mr Williams: Is that not a rather modest assessment of higher? It is considerably higher.
Sir John Bourn: Yes, it was considerably higher.