How Project PFI has left us paying £4.4bn over the odds

A TOTAL of 28 private finance loans taken out to build schools, hospitals and roads in Northern Ireland will cost the taxpayer £4.4bn more than their value over the next 25 years.

The private finance initiative (PFI) was designed to create “public–private partnerships” (PPPs) by funding infrastructure projects such as roads and schools with private capital.

Essentially, these PPPs are loans to the Government which must be paid back over the course of 10, 15 or 25 years.

According to figures seen by the Belfast Telegraph, ministers have taken out just over 30 PFI contracts since 1995, two of which have been paid off.

There is also one contract, for a waste infrastructure project worth £318m, currently out for tender.

The total capital value of the remaining projects is £1.44bn. The payments for these over the next 25 years total around £5.8bn. This means the taxpayer will be paying £4.4bn more than the projects are actually worth until 2044.

The private sector provider is engaged to design, build, finance, maintain and operate infrastructure projects and related services. The risks associated with construction delay, cost overrun and maintenance are transferred to the private sector partner.

Once the school or hospital is operational and services are being provided, the public sector body (such as a Stormont department) pays a monthly fee — referred to as a ‘unitary charge payment’, which includes interest — to the private sector provider.

With a capital value of just over £224m, the Roads Service holds the single largest contract. This is for an upgrade to the A1 between Sprucefield and Cloghogue and improvement works on the 20km stretch of the A4 between Dungannon and Ballygawley.

Over the course of 30 years payments for this project total more than £1bn. The final payment won’t be made until 2039.

Other projects funded through PPPs include: Lisburn City Library, Enniskillen Hospital and three Belfast Metropolitan College campuses.

Until 2012 the primary model of PPP was PFI. The Government carried out a review of PFI aimed at addressing criticisms of this form of contracting.

PF2, the successor to PFI, was launched in December 2012.

One of the key differences between PFI and PF2 is that the Government now acts as a minority co-investor to give greater visibility of the inner workings of projects. Measures have also been put in place to reduce procurement times, and front line services have been removed from the standard contract.

There is also improved transparency of the process, including publication of equity returns from the private investor. Economist Esmond Birnie (below) said this type of borrowing can improve efficiency, but questioned whether it was sustainable at this level here.

“PFI/PPP was very much a child of the 1990s — an attempt at that time by first Conservative and then (new) Labour Governments to find public spending whilst (nominally at least) getting round stated restrictions on borrowing.”

Mr Birnie said that on occasions injecting private management into public service can improve efficiency. He added: “At the same time these contracts can look like a house mortgage — the total paid out being several times the value of the asset.” He called for total borrowing by “Northern Ireland government” to be made public to establish if it was sustainable.