Q21 Chairman: This change is made not with the consent of the public sector, but between one private sector seller and a private sector buyer. So the change has not been agreed and it is not consensual between the customer and the provider; it has been changed by the provider-we assume, because it is advantageous to the provider. By definition, one would have thought that that means it is disadvantageous to the buyer in a range in the public sector.
Mr Kingman: It is absolutely correct that a change in the equity holdings in the project is outside a project, and that is precisely why we see it as different from a refinancing. It does not change the public sector's rights; it does not change the relationship between us and the provider; it is a change in the ownership of the provider.
Q22 Chairman: Hold on. You say it does not change our rights, but it changes what we have our rights to, does it not? If they are selling shares instead of refinancing, they are extracting gain without the public sector sharing in that gain. It is a device.
Mr Kingman: I do not believe that it is a device; I think it is a different kind of transaction from a refinancing.
Q23 Chairman: Yes, it is conniving at getting more money for the private sector.
Mr Kingman: I do not think that that is correct, and I point to the evidence in the Report. The projects where there have been changes in equity holdings have been more likely to be refinanced, with gains accruing to the public sector, than those that have not.
Q24 Chairman: When the Office of Government Commerce gave us evidence, it indicated that it was anticipating that the voluntary share under the process would amount to £175 million to £200 million. To date, at the time of the Report, it had amounted to only £93 million. Why the massive shortfall, just 50% of what was expected? Can you assure me that it is totally unrelated to what we have been talking about, namely the switch to selling shares?
Mr Kingman: I believe that it is unrelated. When Peter Gershon gave you that estimate, he gave it in good faith, but I think that it was always clear that there was a great deal of uncertainty about what would be likely.We have never seen the estimate that Peter gave as a target andit would be quite wrong for us to target any particular level of gain, because our issue-
Q25 Chairman: But it was the best estimate on the information at the time?
Mr Kingman: Correct.
Q26 Chairman: So what changed for the estimate to be literally 100% out? They only got half of what they thought they would get.
Mr Kingman: I am not sure that I can point to anything specific that has changed. It was simply a best estimate that has turned out not to be correct. The private sector is already very highly incentivised to go after refinancings. We do not want to be in a position where the public sector is pushing refinancing levels to meet some number, because it seems to us that the most important test is value for money.
Q27 Chairman: Well, you should be pushing. Remember how we got here. When I first started tabling questions, we had had one report on refinancing. I tabled questions to every Department, and as a result, I discovered that hardly any of them were even trying to get refinancing. That information was handed to the Comptroller and Auditor General, who then showed that only 15% of Departments were getting refinancing. The consequence was a deal of 30%, which eventually rose to 50% as a result of pressure from this Committee. We must push. If we do not, it seems that you will not.
Mr. Kingman: We think that you were right to push on that. We have pushed also. We push public sector providers to get that share of the gains, and the Report's evidence is that it has been successful. What we do not push is refinancing for refinancing's sake. The Report warns rightly that-
Q28 Chairman: Why not?
Mr Kingman: Because refinancing can be very bad value for money, particularly if it involves an increase in termination liabilities. As the Report says, you can imagine that a situation in which public sector providers themselves pushed for refinancing for affordability reasons might result in bad deals for the public sector. Seen from where we sit, the fact that there is a little more caution about refinancing for refinancing's sake, as the Report acknowledges, is an entirely good thing from a value for money point of view.
Q29 Mr Touhig: Mr Abadie-an unusual name. Are you related, by any chance, to Paul Abadie, the 19th Century French architect?
Mr Abadie: No.
Q30 Mr Touhig: Well, that is a relief all around, because after one of his jobs he became known as "Abadie the wrecker". Tell me, must the Treasury approve every proposal to refinance a PFI project?
Mr Abadie: The answer is no.