Q111 Mr Khan: Over what period is that?
Mr Abadie: It is a portfolio, so the individual assets in that underlying-
Q112 Mr Khan: What period are we talking about?
Mr Abadie: Again, it depends on the underlying assets.
Q113 MrKhan: We are not talking 30 years, are we?
Mr Abadie: No, clearly not. It is worth adding that when investors enter these projects in the beginning, they do not expect to own the assets for 30 years. If I look back over policy, going back 10 years to the days of the private finance panels, that was quite openly spoken about.
Q114 Mr Khan: That is what concerns me. I am not a PFI expert, unlike many others of the Committee, but I read somewhere in the Report that that the reason why we should not feel that we have been ripped off as taxpayers in relation to refinancing is that terms and conditions have improved as the advantages of reduced risk trickle down as a result of the more mature PFI market. Yes?
Mr Abadie: Yes.
Q115 Mr Khan: And so taxpayers are appeased because that is the reason why huge profits are being made. Because we were inept and did not negotiate a gain supplement, we have had a voluntary code and have got 30%, if we are lucky, and 50% after 2002. Yes?
Mr Abadie: Correct.
Q116 Mr Khan: I am unclear, however, about the justification that you are giving for yet further profits being made by the equity markets. How can you explain this double profit that is now being made by the equity markets? You have explained the refinancing profits, and we have alleviated some of the pain that taxpayers are feeling as a result of being short-changed in the original negotiation, but how do you explain the second tranche of profits being made by equity?
Mr Kingman: I just want to make a general observation before Richard comments. The fact-
Q117 Mr Khan: Mr Kingman, I only have 10 minutes, and seven minutes are up, so please deal first with my specific question, and then you can make your general point in the Chairman's time.
Mr Abadie: When the investors went into these projects initially-
Mr Khan: I am sorry, but I really cannot hear you.
Mr Abadie: Sorry, it must be my voice-I am losing my voice here. When the investors went into these projects initially, they had certain expectations of what type of returns they could possibly make on the back of their investments. Those would have included an assumption about the amount that they could make out of refinancing, which is clearly a source of revenue, and, as an ancillary, what they could potentially make by selling on their investments. Those things are not mutually exclusive.
Q118 Mr Khan: So they foresaw, when they first negotiated these deals, that they would make two tranches of profit: first during refinancing and then by selling shares?
Mr Abadie: If the asset was performing. As John said, some people have lost all their money-
Q119 Mr Khan: But, Mr Abadie, if they could foresee that, why could not we foresee it and write it into the contract to ensure that we would get the proceeds of the refinancing or of the equity? I do not understand.
Mr Kingman: It depends entirely on whether the project is successful. If it is successful it is possible to make money, but if it is unsuccessful it is possible to lose money.
Q120 Mr Khan: I am not asking you to take proceeds from those who lose money; I am asking why we could not get a better deal for when huge profits are made.
Mr Kingman: If you are suggesting that we should take equity stakes in PFI projects, I think that that would be a very big step for the Government to take. We would essentially be saying, "Not only do we want to buy a prison or hospital, we also we want to take a stake in the commercial success or otherwise of that venture." I think that the PAC would be the first to challenge us on the value for money of doing that.