PFI/PPP

The following discussion relating to the use of PFI/PPP in Wales took place during the NAW Plenary Session held on 10 March 2009. (Full transcript available here).

The Private Finance Initiative

Leanne Wood AM (Plaid): What recent discussions has the First Minister had regarding Welsh PFI projects?

The First Minister: I have frequent discussions about the largest PFI project set up for Wales, namely the defence technical academy at St Athan. I am pleased to confirm that recent progress has been made in closing the project’s financing gap following the appointment of a new equity partner, Sudexho, replacing the former partner, the much smaller Land Securities Trillium.

Leanne Wood: Today has seen the publication of a report by the National Assembly’s Finance Committee in which it argues for more use to be made of public-private partnerships. I am sure that you are already aware of the concerns expressed by the trade unions about that. Are you minded to accept the committee’s recommendations?

The First Minister: I am not aware as yet of the content of the Finance Committee’s report. I do not have time to read everything. People keep throwing things at me that have come out in the past 24 hours or whenever, and which I should have read, but I am sorry to say that I have not.

The broad thrust of where we are going with private finance initiatives is that we are aware of the big ones that are in Wales but are not generated by us, such as that at St Athan that I referred to, and local authorities are not discouraged at all from bringing forward such projects for new schools. Indeed, sometimes they do so. Such schemes are not as attractive now as they were, since the change introduced by the International Accounting Standards Board, which means that you have to put the up-front costs in the balance sheet in year 1, as though you were spending all the money that year, even though you may be paying for it over 20 years. It does not make any difference now, following the Government’s acceptance of the International Accounting Standards Board’s recommendation that it is all put under year 1 as though you were spending all the money in year 1.

Nick Ramsay AM (Conservative): I welcome the First Minister’s answer. That question was timely given that it came in the wake of the highly successful launch of the Finance Committee’s report on public-private partnerships this morning. It is a report that recognises some of the advantages of using private finance for public sector delivery. The report was launched at Nightingale House, the highly successful flagship hostel for vulnerable people. Will the First Minister agree that the reality is that that hostel could not have gone ahead were it not for the use of private money, and that we should therefore not shut the door on any avenues open to us for funding such projects in Wales?

The First Minister: As I noted in my answer to Eleanor Burnham, we have said that waste management and transport may well be quite promising fields for the use of PFI. We have said that we do not want to see any PFI projects from henceforth in the health service, but we have not told local authorities that we would deny them the PFI credits that we have provided in the past for school construction. However, as I said to Leanne, PFI is not as attractive as it used to be. You can no longer simply add on the interest payments for every year in the year in which they occur, following the acceptance by the Office for National Statistics—and I said earlier that it was by the Government, but it was not, and the ONS is not really a part of the UK Government—that PFI projects would be treated as though all the money was spent upfront. There is no longer the same financial advantage as there was from the mid 1990s to the earlier part of this decade. It is not as attractive as it was, but people will still find it attractive in certain circumstances, certainly in waste management, and we anticipate that being the case with some of the energy from residual waste projects that are being talked about.

Jenny Randerson AM (Liberal Democrat): I am pleased to hear that you and your Government are looking rather more positively at PFI in light of the Finance Committee’s report, on which I know it laboured for many months and took the issues seriously. Are you considering PPP or other models, perhaps akin to those used in Scotland or Sweden, for school buildings?

I was concerned to hear that the school buildings improvement grants will not be announced until April, which indicates that the Government is having problems finding the money for it this year and is taking a more central-control approach to it. Can you confirm whether you are considering PPP for school buildings and what the issues and concerns are in relation to the school buildings improvement grants?

The First Minister: To correct you, rather apologetically, I was not commending what is said in the Finance Committee report; I am totally neutral on it because I have not yet had the opportunity to read it. On whether school buildings can be built through PFI schemes, I have said it twice already that we do not deny local authorities the opportunity to consider whether they want to use PFI. We have approved PFI schemes that are under development. I have opened PFI schools and seen that they are very successful and provide an excellent learning environment. Some of them do not look particularly good on the outside; some do. There are some problems with low-maintenance buildings, which are not quite as attractive as those built by traditional methods. That criticism is sometimes made. I have made the point that PFI is less attractive than it was for reasons relating to the International Accounting Standards Board, but we are certainly not denying local authorities the opportunities to consider it.

On the school buildings improvement grant, we have provided that scheme to local authorities so that they do not have to go down the road of PFI. As far as I am aware, there has been cross-party support for the fact that the PFI should not be necessary simply because there was no other way of getting hold of the £20 million or £24 million that it would cost to build a new secondary school. Sometimes an authority will go down the PFI route and sometimes it will go down the route of using good old-fashioned taxpayers’ money through the SBIG.