Q1 Chairman: Good afternoon, welcome to the Committee of Public Accounts, where today we are looking at The Refinancing of the Norfolk and Norwich PFI Hospital, and we are joined from the Department of Health by Mr Peter Coates, who is the Deputy Director of Finance, and from the Norfolk and Norwich University Hospital, Mr Paul Forden, who is the Chief Executive, and Mrs Anna Dugdale, who is Director of Resources. Perhaps I could ask some questions of the Trust, first of all, and start with you, Mr Forden, if I may? Thank you for coming, by the way, we are very grateful. Could you please look at the Comptroller and Audit General's Report, particularly page 2, figure 2? If we look at that figure we will see that two years after the new hospital opened the shareholders of Octagon were enjoying a rate of return of over 60%. Surely you cannot say that this is value for money, can you, Mr Forden?
Mr Forden: I would not possibly try to defend any rate of return at 60% as necessarily being the very best value for money for us. What I can say, though, is that clearly there is an output from several factors.
Q2 Chairman: You will have to try to speak up, and speak clearly, and speak to us.
Mr Forden: We do know that the shareholders took the refinancing very early and that clearly makes a big difference on the internal rate of return-the fact they actually took it upfront. From the Trust perspective though we also see that as something of a return as well because actually we got back £30 million, which is our contribution from the success of the project.
Q3 Chairman: We will also look in a moment at the fact that this rate of return was largely because they borrowed an extra £100 million, was it not?
Mr Forden: That is correct.
Q4 Chairman: For which ultimately you are liable in the event of termination; that is correct as well, is it not?
Mr Forden: In the event of termination it is much more likely that actually the liability will be sold on to another investor. It would not be in Octagon's interests to actually fail and not to try to sell that liability.
Q5 Chairman: Why not?
Mr Forden: Because the future gains from the hospital would still make it an attractive investment to anybody else.
Q6 Chairman: But there is still that possibility?
Mr Forden: There is.
Q7 Chairman: Which you did not foresee at the time?
Mr Forden: We foresaw that at the time; we actually did an analysis on that risk.
Q8 Chairman: You foresaw refinancing, did you?
Mr Forden: No, we foresaw the potential termination, sorry.
Q9 Chairman: Let us look now at figure 2 on page 2 again and you will see the 60% return, which I have just mentioned, which is very high, compared to the initial shareholder expectation of 18%, which is of course an enormous jump. Has the service from Octagon similarly exceeded your provisional expectations? The answer must be no.
Mr Forden: Our service from Octagon is actually very good. I have worked in another hospital where there is a PFI company, and I have to say that I am more impressed with Octagon than I was in the previous hospital. It is not necessarily a 300% improvement, but it is certainly a very satisfactory service.
Q10 Chairman: So you think that is good enough, that they cannot possibly give you 300% improvement, but they have given you some sort of improvement so you are happy with that, are you? And their shareholders are now enjoying a rate of return at 60%, having thought at the beginning of this contract that they were only going to get 18.9%, and you think that is a satisfactory position that this Committee should not be unduly concerned about, do you?
Mr Forden: There is very little the Trust could actually do around that. We have followed the guidance throughout on the programme; we have followed the guidance around the refinancing.