Q1 Chairman: Today, we are considering the Comptroller and Auditor General's Report, Update on PFI debt refinancing and the PFI equity market. We have two guests here today: Mr John Kingman and Mr Richard Abadie. Welcome back, gentlemen. May we start with you, Mr Kingman, and look at figure 12 on page 21? The middle panel shows some startling figures. Starting at the bottom of the middle three with Norfolk and Norwich: total refinancing gain £116 million, pre-refinancing internal rate 16%. After refinancing it had increased fourfold to 60%. Bromley hospital: total refinancing gain £45 million, pre-refinancing 27%, post-refinancing 71%, a threefold increase. For Debden, the sums are smaller, but the percentages are every bit as dramatic. Debden school: £1 million total refinancing gain, 16% internal pre-refinancing rate and 71%, four and a half times that, post-refinancing. How on earth could the Treasury allow such obscene profit figures to arise?
Mr Kingman: Mr Chairman, thank you. There has obviously been a great deal of discussion over the years on this very subject. We think that, with the assistance of the work that the NAO has done and the hearings that the PAC has held over the years, we have got to a place where we are able to secure a fair and sensible share of the gains from refinancing for the taxpayer. The background, which is important, is that our concern at the Treasury is value for money; it is getting capital projects built better and cheaper and delivered to time and budget, and there is clear evidence that the PFI programme has done that. It is true that there have been projects where it has been possible for contractors to make significant sums; equally, it is true that there have been projects where contractors have lost significant sums. Our concern is with getting the projects delivered on time and to budget.
Q2 Chairman: But it is surely difficult to reconcile fourfold increases in the percentage rate of return with any concept of value for money.
Mr Kingman: Our view would be that the key tests of value for money are whether we are getting the right projects and whether we are getting them on the right terms, and there is clear evidence that PFI is doing that much better than conventional forms of procurement have done. Yes, as I say, people have made significant sums on particular projects. We think that it is right we have been able to secure a fair share of the gains for the taxpayer, and I pay tribute to the work that the NAO and the PAC have done over the years, which has helped us in that.
Q3 Chairman: Those tail figures-71%, 71% and 60%-do not cause you any embarrassment or any feeling that they are difficult to reconcile with value for money?
Mr Kingman: I do not think that they cause as much embarrassment as they would if the projects were very expensive or very delayed. Looking back over the work that the NAO has done, the fact is that, under conventional forms of procurement, something like three quarters of projects were delivered over budget and three quarters were delayed. The record of PFI has been dramatically better.
Q4 Chairman: Bearing in mind that the figures I gave are from those who deigned to provide information, what do you think about the 16 of the 36 projects that the NAO approached-virtually half the projects-which provided no information at all or hardly any? Are you not worried that they might be even more grotesquely inexplicable?
Mr Abadie: Since 1999, all projects through our standard contract have an obligation, if asked by the NAO to reply, to provide the information requested. The fact that they have not replied-I am not aware why they have not replied-
Q5 Chairman: Are you not concerned that they did not reply? Are you not concerned that you do not know why they did not reply? I should have thought that it was your job to find out.
Mr Kingman: We certainly believe that we need better information than we currently have on some of these situations; I entirely agree with that point, and the recommendations in the Report are very helpful.
Q6 Chairman: So you have written to each of the 16 and told them that you want a reply from them?
Mr Abadie: No, we have not.
Q7 Chairman: Why not?
Mr Abadie: The survey was done by the NAO. We have a broader process of-
Q8 Chairman: But you knew that you were going to be asked questions here and you must have guessed that virtually every Member of the Committee, given the opportunity, would want to ask the same question-I just happened to be first. The fact that virtually half the projects did not reply suggests that they just may have had something to hide. If I had been in your position, I would have wanted to come here equipped to answer. Do you not feel that you should have done more to find out?
Mr Abadie: We have a wider process of trying to access and receive information from all the projects, not just those 16. It is that process that we are focussed on.
Q9 Chairman: Do you even know which the 16 were?
Mr Abadie: Again, I do not know at the moment.
Q10 Chairman: You do not know whether you know?
Mr Abadie: I do not know which the 16 projects are.