As I briefly mentioned in a previous post, a few weeks ago I came across a spreadsheet summarising awarded PFI contracts as of 2013 (private finance initiative projects, 2013 summary data). At the time, I put together a couple of quick notebooks exploring the data. This data is a summary post/note to self about what’s in those notebooks.
As background to what PFI actually is, the Commons Treasury Select committee published this report on the Private Finance Initiative in July, 2011. It describes PFI as follows:
In a typical PFI project, the private sector party is constituted as a Special Purpose Vehicle (SPV), which manages and finances the design, build and operation of a new facility. The financing of the initial capital investment (i.e. the capital required to pay transaction costs, buy land and build the infrastructure) is provided by a combination of share capital and loan stock from the owners of the SPV, together with senior debt from banks or bond-holders. The return on both equity and debt capital is sourced from the periodic “unitary charge”, which is paid by the public authority from the point at which the contracted facility is available for use. The unitary charge may be reduced (to a limited degree) in certain circumstances: e.g. if there is a delay in construction, if the contracted facility is not fully operational, or if services fail to meet contracted standards. Thus, the PFI structure is designed to transfer project risks from the public to the private sector.
The document A new approach to public private partnerships, HM Treasury, December 2012 clarifies that “the public sector does not pay for the project’s capital costs over the construction period. Once the project is operational and is performing to the required standard, the public sector pays a unitary charge which includes payments for ongoing maintenance of the asset, as well as repayment of, and interest on, debt used to finance the capital costs. The unitary charge, therefore, represents the whole life cost associated with the asset.”
A brief critique of PFI in the context of the health service can be found in The private finance initiative PFI in the NHS — is there an economic case? by Declan Gaffney, Allyson M Pollock, David Price and Jean Shaoul.
The PFI summary data table itemises historical unitary charge payments associated with a particular project on a financial year basis (eg ‘Unitary charge payment 1992-93 (£m)’) as well as projected unitary charges (eg ‘Estimated unitary charge payment 2015-16 (£m)’). An amount is also given for the Capital Value (£m) of the project.
The first notebook – Quick Look at UK PFI Contracts Data – identifies all the columns available in the spreadsheet.
For example, separate columns identify whether a project is ‘On / Off balance sheet under IFRS’, ‘On / Off balance sheet under ESA 95’, or ‘On / Off balance sheet under UK GAAP’. According to the New Approach document:
Departments have separate budgets for resource and capital spending. Resource spending (RDEL) includes current expenditure such as pay or procurement. Capital spending (CDEL) includes new investment. The scoring of the project in departmental budgets depends on whether the project is classified as on or off balance sheet under ESA95.
1.12 If a central government project is deemed to be on balance sheet under ESA95, then the capital value of the project (i.e. the debt required to undertake the project) is recorded as CDEL in the first year of operation; and the interest, service and depreciation are recorded as RDEL each year unitary charges are paid.
1.13 If a central government project is deemed to be off balance sheet under ESA95, then there is no impact on the department’s CDEL in the first year of operation. The full unitary charge (including interest, service and debt repayment) does, however, score in RDEL each year. Around 85 per cent of past PFI projects have been considered off-balance sheet under ESA95.
The notebook includes summary calculations such as the total capital value of projects by sector, as well as time series plots showing the value of unitary charge payments over time (both in total and for particular procuring authorities or department.
The spreadsheet also contains information about equity partners. We can use this to report on the projects that a particular company is involved with.
We can also review the unitary payments going to a particular group over time:
The second notebook – A Quick Thread Pull Around PFI Special Purpose Vehicles – digs around the PFI project SPVs (special purpose vehicles) a little more, using data from OpenCorporates.
One question explored in the notebook is whether or not the set of directors for a particular SPV also act as the set of directors for any other companies. So for example, for the SPV that is Pyramid Schools (Hadley) Ltd, we find several other companies sharing all the same directors:
For Island Roads, we see that several companies appear to have been set up associated with the project. In addition, there are several directors from the Island Roads director list associated with other companies, for example HOUNSLOW HIGHWAYS SERVICES LIMITED or PARTNERS 4 LIFT.
A search of PFI SPVs identifies Hounslow Highway Services Limited as another PFI company, so the director linkage suggests that one of the partners for the Island Roads project is also a partner of the Hounslow Roads project. In this case, the linkage can also be identified through the equity partners:
There is possibly more that could be done to look through the linkage between the PFI SPVs and equity partners, eg on the basis of similarities between directors, or registered addresses. There might also be some mileage in looking at directors who are also directors of companies that make large political donations, for example.