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An influential group of MPs has claimed that widespread financial incompetence is adding to the cost of the United Kingdom's controversial private finance initiative (PFI).
The House of Commons Committee of Public Accounts made its new attack on the PFI after it discovered that the government had clawed back £100m (€145m; $200m) less than was predicted from the new private-public profit sharing schemes.
The committee's chairman, the Conservative MP Edward Leigh, blamed the loss on the failure of Treasury officials to oversee key refinancing arrangements.
In 2002 ministers introduced changes so that public sector bodies could share in some of the financial gains when big PFI loans were rearranged.
Typically, these loans were renegotiated on a more favourable basis once PFI projects had been completed and the risks involved were lower.
However, left to their own devices, officials in local hospitals and schools had been out of their depth negotiating with their counterparts in the private sector, the committee says in its report.
In 2003 the Office of Government Commerce, which then had responsibility for PFI policy, told the public accounts committee that it expected the public sector to receive between £175m and £200m from the voluntary sharing arrangements in early PFI deals. However, up to December 2006 the government had secured the right to gains of only £93m.
“Proceeds gained by the public sector from PFI debt refinancing under the voluntary code for the sharing of gains are currently well short of expectations” said Mr Leigh.
He added: “Local public sector officials taking forward PFI projects such as hospitals or schools are often painfully lacking in commercial experience.” He said the “ill conceived” Norfolk and Norwich Hospital refinancing in 2003 had “demonstrated this all too clearly.”
The BMJ reported a year ago how the private sector consortium Octagon raised profits for its investors by refinancing the Norfolk and Norwich PFI hospital project (BMJ 2006;332:1051 doi: 10.1136/bmj.332.7549.1051-a). The refinancing deal made £116m—but only £34m of this went to the trust. In addition, it emerged that the trust would have to pay the consortium up to £257m to end its contract with Octagon early.
The committee member and South Norfolk MP Richard Bacon described the quality of the advice that the government offered the Norfolk and Norwich hospital over its PFI project as “woeful.”
The committee's new report calls for the government to provide more expertise to local negotiators. “Staff negotiating the fine print of refinancing clauses in contracts, where the risks to the public sector can be high, must be trained so that they are not outwitted by their commercially sophisticated private sector counterparts,” said Mr Leigh.
His report adds that the Treasury should in future check any refinancing arrangement that provides substantial gains to investors.
Jonathan Fielden, chairman of the BMA's consultants' committee, said: “It is appalling that the government let these negotiations go ahead, allowing the private sector to fleece the NHS. Such huge scale financial projects should have been managed to get the best deals for the NHS, patients, and tax payers.
“The BMA will be urging the new cabinet to move away from wasting large sums of money in private sector deals which have been shown to offer poor value and can leave hospitals heavily in debt for decades.”
Update on PFI Debt Refinancing and the PFI Equity Market: 25th PAC Report 2006-07 is available at www.parliament.uk.