If the private finance initiative (PFI) is a success story, as Adrian Ewer,
chief executive of John Laing, the infrastructure specialists, believes,
then why does the man on the street have such a downer on the scheme?
“PFI struggles a bit from mistrust,” Ewer says. “It struggles a bit from what
I call the fat-cat syndrome, a belief that the private sector is making huge
amounts of money at the expense of the public sector.”
It is a sign of changing times. Having been through the mid-1990s' angst of
getting the legislation, then seeing a flush of projects, the emphasis, Ewer
says, has moved to value for money and affordability, and the public sector
“needing to see that it is getting a fair deal - the trust issue”.
Joint ventures, which Ewer expects to see more of, will help to knock down
some of the mistrust and show value for money because public and private
sector partners will share the risks and rewards.
An added benefit is that joint ventures will help public sector partners to
deal with new accounting rules, the International Financial Reporting
Standards, which will cause several projects to be brought on to the public
sector balance sheet.
“In some areas of the public sector there will be pressure to try to keep
projects off balance sheet,” he says. Changing the structure of projects is
one way to do that and is already happening, he says, but the pace of change
may increase.
Relationships with banks are becoming more important for companies like John
Laing during the credit crunch. “We have to trade off the banking
relationships, which is make sure we know that they're all still open for
business, and that they regard us as an important client. That's where they
will be placing their money. And that means there [are] going to be fewer
banks around who just come in on a project because they see the opportunity
to get some money out the door on a project.”
But will there be a negative effect on PFI projects? “In today's market
we can do it,” he says. “I don't believe it's going to get worse
... but things are moving and we just have to be alive to what's going on
out there, stay in touch with the debt markets, just to see what's driving
the providers of this debt, and making sure that we come up with the
structuring of projects that suits what they're prepared to do for us as a
valued client.”
And what of the Office of Fair Trading investigation, which says that 112
construction companies in England have been involved in bid rigging,
colluding with their competitors and leaving the public sector with inflated
prices? While Ewer says that he does not know what has actually been going
on, he speculates that public sector clients have put pressure on companies
to bid for projects to show adequate competition. “Construction companies
have a strong regional presence, so particularly where they're dealing with
local authorities, there is almost an expectation that they will bid for
certain projects. They put in a price at a high level when they don't want
the work.”
He says that the scenario would not inflate prices, since the bottom price is
still there, but it creates a false impression about market forces. So while
the practice may be understandable, it's not acceptable. The idea that PFI
is to blame for this “probably couldn't be farther from the truth”, he says.
“The competitive pressure to win these bids is enormous because of the
amount of money you have to spend to go through the bid. I can't believe
that anyone would get themselves into a position where they'd be happy to
spend millions of pounds to deliberately lose. I just can't believe it.”
Born: September 19, 1953, in London.
Career: After qualifying as a member of the Institute of Chartered
Accountants, pursued his finance career with Chloride Group, Akai (UK), the
Ratcliffe Group and as group treasurer for Lilley. Joined John Laing in 1991
and was appointed the group's deputy finance director in 1995, group finance
director in June 1999, and chief executive in 2006.
What he says about PFI: “This is not a mature market that has found its
happy landing place and there it has settled. It never has settled. It's
developing, developing, developing.”
Little-known fact: Plays drums in a band as a hobby.
Scots steer clear of PFI
They probably don't know it, but every Scottish taxpayer is in debt to the
tune of £4,500 for the private finance initiative (PFI).
The Scottish National Party (SNP) has always been a fierce critic of the
“excessive profits” made by private investors at the expense of the public
purse, says Public Servant (May), and wants to reduce the public debt from
PFI. That is why the SNP has been consulting on a proposed alternative, the
Scottish Futures Trust (SFT).
Public Finance (April 25) describes the SFT as a non-profit body that will
finance public projects. But the funding will include private, as well as
public, money.
In a further blow to PFI, Public Finance reports that the Scottish Government
will fund Scotland's biggest hospital, the £842 million New South Glasgow
Hospitals complex, entirely with public money, rather than using PFI.
Alex Salmond, the First Minister, says: “By funding the entire project through
public finance we are ensuring [that] it is deliverable, affordable,
sustainable and represents best value for money for the taxpayer.”
He's not the only person who displays little enthusiasm for PFI. Eddie McAvoy,
the Labour leader of South Lanarkshire Council, where the UK's biggest
schools PFI project is taking place, tells Public Servant: “I'm not a
fan of it. Given the choice, I would have done it through traditional
borrowing.”
