In early 2016, the Highland Council was refused permission by the Scottish Government for additional borrowing powers to buyout two PFI schools contracts that had commenced in 2001 and 2006. Unitary payments for the contracts for 15 schools total £93.7m and £716.8m respectively with a current payment of about £29m per annum. The Council believe they were refused because it would have set a precedent and additional Council borrowing could impact on the Scottish Government's own borrowing proposals (Russell, 2016 and Freeman, 2016).
The Highland schools contracts illustrate the complexity and changing ownership of PFI assets. The equity in the first project (Community Schools (Highland) Limited (a subsidiary of Community Schools Holdings Ltd) was jointly owned by the Royal Bank of Scotland and MJ Gleeson Group plc (construction company), but in November 2004 they each sold their equity to Henderson PFI Secondary Fund l for an undisclosed amount. In June 2012 Henderson sold 100% of the equity to Civic PFI Investments Limited (owned by Grosvenor PFI Holdings Ltd). These two companies and Cardale Infrastructure Investments Ltd and GCP Infrastructure Investments Ltd (Gravis Capital Partners) are registered in Jersey.
Civic PFI Investments obtained a £11.2m loan from GCP Infrastructure Investments in 2012 secured against the cash flows arising from the first Highland school project and the Sheffield Family Court PFI project. The terms of the 17-year loan were to "…produce a return of 9.31% p.a. annual equivalent, plus an element of inflation protection" (GCP RNS 1837C, 27 April 2012). The Bank of England interest rate was 0.5% in 2012.
Morrison Construction (Anglian Water) began construction of the schools for the second Highland schools project, Alpha Schools (Highland) Ltd (a subsidiary of Alpha Schools Highland (Holdings) Limited). However, it was taken over by another contractor, Galliford Try plc in 2006 and thus acquired a 50% equity stake in the SPC. Three years later Galliford sold its equity to HICL infrastructure fund (Guernsey) for £16.5m and a profit of £4.4m. The other 50% stake, owned by Northern Infrastructure Investments LLP (3i Group plc (Jersey) and Noble Financial Holdings Limited), until it was also sold to HICL in March 2013 for £21.2m - profit not disclosed (ESSU PPP Equity Database 2012). HICL now has 100% ownership of the second schools project.
The rationale and conditions for buyouts have varied widely and the degree to which significant offshore equity ownership may impact on buyouts has yet to be tested.