Q41 Mr Touhig: The Report points out, on page 31, that equity investors and debt providers have considerable opportunities to generate benefits from refinancing PFI projects. Do you agree with that?
Mr Kingman: Yes, I do agree. That was particularly the case with earlier projects. In relation to those, and following the discussions at numerous PAC hearings and the work of the NAO, our aim has been to extract a fair share of the gains in accordance with the code negotiated with the private sector.
Q42 Mr Touhig: But you do not have to approve each project. Do investors have to advise you of any improvement in value, and do they share with the public the financial benefits from a refinancing project?
Mr Abadie: Yes, they do. Once a refinancing is completed, or even before it is completed, the refinancing taskforce would be made aware of it and provide support where necessary. I shall add an important point to what John said: from our point of view, there are very few cases in which the code has not been complied with. Even when you see the levels of return to which you referred, the code is nevertheless complied with. The Government have received their 30% share under the code as was voluntarily negotiated with the private sector. In that sense, it is not a failure of the code that the private sector is getting a 70 or 71% return. That is a separate issue.
Q43 Mr Touhig: The Chairman pointed out examples at the beginning of the sitting describing the very considerable refinancing gains that accrued: £1 million was the smallest; £116 million the largest. People must think that the Treasury is a pretty soft touch. In your earlier response to the Chairman, you could not tell us why we could not get responses from some of the companies involved.
Mr Kingman: I do not accept that we are a soft touch. The success has been in negotiating the voluntary code-it is worth remembering that the Government had precisely no legal entitlement to any of the gains-and the NAO's Report concluded that it was a successful negotiation.
Q44 Chairman: You may say that the fact that there was no legal entitlement was a fault in the drafting of the scheme in the first place.
Mr Kingman: Perhaps.
Chairman: So do not use that to bounce back at the Committee.
Q45 Mr Touhig: You may not have any legal entitlement-I understand that-but you are giving people a licence to print money.
Mr Kingman: All I can say is that we negotiated a code, and that that negotiation was regarded as successful. The key thing now is whether the code is a reality and whether it is working. I believe that the evidence of the Report is that it is.
Q46 Mr Touhig: I am not clear whether you are interested in processes or outcomes. Why do you allow Departments to opt to take their benefits over a periodoftime? Why do you not say "Take the cash now"-a bird in the hand and all that?
Mr Kingman: Because some Departments prefer to take benefits in other forms. There are legitimate reasons for taking the benefits in one form rather than another. I do not think that hard, rigid Treasury rules on everything would be justified in this case.
Q47 Mr Touhig: Why break the habit of a lifetime? We have hard, rigid Treasury rules on every damn thing. Why do you think that certain investors are building up large portfolios of PFI projects? Is it because they are public spirited?
Mr Abadie: They have been building up those portfolios since the beginning of PFI. It is quite normal practice. Most of the equity funds that are named in the Report were set up in the mid to late 1990s with a view to building up those assets.
Q48 Mr Touhig: Is it a good thing?
Mr Abadie: From the point of view of efficiency, we believe so. I shall not name specific funds, but some have collective insurance arrangements, and the benefits are passed on to the individual projects.
Q49 Mr Touhig: Is not there a danger that increased ownership of PFI shares by a few large investors will in fact allow those investors to control the market and reduce competition? Is the Treasury against competition these days?
Mr Abadie: Most definitely not. It is a question of the appropriate number of investors. There are five or six fairly substantial equity funds in the market and there are four or five very large contractors that have equity portfolios as well. There is a high degree of competition between the eight and 10 fairly large investors, so lack of competition does not overly concern us.
Q50 Mr Touhig: The Treasury is not overly concerned. That is definitive?
Mr Abadie: Correct.