The evidence of profiteering

The database contains 226 PPP projects where the selling price and profit from the equity transaction have been identified from reliable sources, mainly regulatory news announcements and company annual reports - see Table 10.

Table 10: PPP equity transactions with profits data available 1998-2012

Year

Transactions

No of PPP projects

Sale price

Profit

% Profit

Average annual rate of return

2012*

2

3

55.3

40.2

72.7

43.3

2011

19

28

184.6

66.0

35.7

13.5

2010

7

29

378.4

189.0

49.9

19.2

2009

17

41

306.0

42.9

14.0

23.5

2008

4

9

83.1

46.3

55.7

24.8

2007

6

23

167.2

87.5

52.3

28.4

2006

10

36

189.3

72.5

38.3

32.5

2005

11

14

263.3

108.5

41.2

26.6

2004

7

16

68.0

26.3

38.7

43.9

2003

8

20

134.6

87.3

64.8

42.3

2002

0

0

0

0

0

0

2001

1

6

92.5

58.5

63.2

63.3

2000

0

0

0

0

0

0

1999

0

0

0

0

0

0

1998

1

1

3.4

4.6

0

179.3

Total

93

226

1,925.7

829.6

n/a

29.0

Source: European Services Strategy Unit PPP Equity Database 2012. * to 30 June 2012.

Very high rates of return have been obtained in some PPP equity transactions - a sample of hospital, housing, waste water, road and prison projects is illustrated in Table 11. The sale of equity in 12 PPP projects resulted in an annual rate of return of over 100% and another 25 had an annual rate of return of between 50%-100%.

Table 11: Examples of high annual returns

PPP Company

PPP project and year of transaction

% Annual Return

Interserve plc

University Hospital London, 2012

50.3

Kier Group plc

Aberdeen Waste Water PPP and Hinchingbrooke Hospital, 2011

61.0

Balfour Beatty plc

Edinburgh Royal Infirmary and Aberdeen Waste Water PPP, 2010

59.5

Galliford Try plc

Portsmouth, MoD housing project (148 units), 2008

122.8

Interserve plc

Littlemore Psychiatric Hospital, Oxford, 2006

53.0

John Laing

M40 Denham to Warwick, 2004 (£6.4m profit in 3 months)

128.6

Mowlem Construction

City Greenwich Lewisham Rail Link (Docklands Light Railway) 2003

73.3

Wackenhut Corrections Corporation Inc

HMP Dovegate, HMP Ashfield, HMP Lowdham Grange Prisons and Hassockfield Secure Training Centre, 2003

66.8

Source: European Services Strategy Unit PPP Equity Database 2012

"The PPP business reported a significantly higher result. That was driven by our successful capital recycling program in the UK with the sale of the Group's interest in Romford."

Lend Lease Corporation, half-year statement, February 2010

Two groups of very high and very low annual rate of returns were examined.

Fourteen transactions (37 projects) had an annual rate of return over 50.0%, with 22 projects sold between 2006-2012.

Forty three projects (11 transactions) had an annual rate of return of under 10.0%. They were grouped into two periods. Five transactions occurred between 2003-2006 with eleven projects having a financial close between 1996-2001. A second group of transactions (32 projects) took place between 2009-2011.

Projects with a high annual rate of return were sold an average 5.1 years between financial close and sale compared to 6.3 years for projects with a low annual rate of return. The average for all projects in the ESSU database was 6.03 years (Table 3). A comparison of the profile of the 43 projects with the total number of PPP projects in equity transactions (Table 5) reveals that health projects were significantly under-represented, 11.6% compared 30.4% of the total, and criminal justice, defence, housing and waste/water projects accounted for a larger proportion of the 43 projects.