2.29 The total refinancing gain due to the Trust is £11.7 million in net present value terms. Other than the immediate payment of £1.5 million the remainder of the gain to the Trust is being taken over time. This is consistent with the Department's policy on this and other refinancings that NHS Trusts should take their share of the refinancing gains by way of a reduced annual PFI contract charge rather than a cash lump sum at the time of the refinancing. This inevitably creates a risk that the NHS Trust might fail to recover its full share of the refinancing gains if the contract does not run its full course. There is also a contrast between the private sector shareholders' decision to realise their refinancing gain immediately and the Department's approach of preferring to realise its share of the refinancing benefit over time. The Department sees this as a reflection of different objectives – the private sector companies under pressure to provide early returns to shareholders on projects where there will be some uncertainty about long term cash flows compared to the Department's priority of reducing the annual payments on a hospital which it expects to utilise for the long term.
2.30 The Department considers that there are both accounting and cash management issues which have caused it to recommend that NHS Trusts receive refinancing gains over time. The Department notes that under resource accounting taking the gain as a lump sum results in the Trusts having to create a depreciable asset which means an annual charge on the Trusts' accounts has to be funded. If the gain is taken as a reduction to the annual PFI contract charges the cash and accounting benefits are matched. The Department also considers that there is a risk that Trusts will use the lump sum benefit to address short term financial problems which the Department considers inequitable as this may be at the expense of future service provision. Finally, the Department considers that taking the gain as a reduction to the annual PFI contract price provides greater financial certainty by providing the Trust with the same benefit in all years of the contract. It is also possible that THC Dartford would have had to take on additional borrowings to pay the Trust's share of the refinancing gain as a lump sum which in turn may have increased the further the Trust's termination liabilities.
2.31 In recommending that NHS Trusts should receive refinancing gains over time the Department does not believe that there is a risk that the benefits will not be received by the Trusts. The Department expects that, in the event of a PFI contract being terminated, NHS Trusts would settle their termination liabilities by continuing to pay the reduced annual contract price to the funders (thus allowing the Trusts to continue to benefit from the refinancing). Or, alternatively, the outstanding balance of the Trusts' refinancing gains would be deducted from any lump sum termination liabilities payable by the Trusts.