PFI I don't get it
Discussion
256 Mil hospital cost 43 Mil a year
16.79 % return on investment
I didn't realise mortgage rates were so high!
Does the health authority own the building after the PFI?
can some of you smart finance types tell me why this was a good idea?
I am odviously too thick to see it!
http://www.bbc.co.uk/news/uk-england-hampshire-126...
16.79 % return on investment
I didn't realise mortgage rates were so high!
Does the health authority own the building after the PFI?
can some of you smart finance types tell me why this was a good idea?
I am odviously too thick to see it!
http://www.bbc.co.uk/news/uk-england-hampshire-126...
Simply put
Private consortium builds a facility for the public sector
Private consortium provides facilities management/equipment to the public sector occupier (clearly they were already paying for FM charges in the old building
Public sector occupier pays an amount each year (prbably inflation linked) for the occupation of the building an the additional services/equipment
In the case of a hospital the building almost certainly reverts to the NHS at the end of the project agreement. Private sector are likely to have taken some land or possibly the old building to redevelop.
Cost of building versus annual charge is like comparing apples with pears as the annual charge covers more than the cost of building
Amongst other things issues with it are the fact that the private scetor needed to borrow to finance the construction and borrowing rates for private sector companies were higher than the public sector (had they been allowed to) could borrow at, private sector needed to make a profit
Many years since I advised on this sort of thing but that's broadly it.
Private consortium builds a facility for the public sector
Private consortium provides facilities management/equipment to the public sector occupier (clearly they were already paying for FM charges in the old building
Public sector occupier pays an amount each year (prbably inflation linked) for the occupation of the building an the additional services/equipment
In the case of a hospital the building almost certainly reverts to the NHS at the end of the project agreement. Private sector are likely to have taken some land or possibly the old building to redevelop.
Cost of building versus annual charge is like comparing apples with pears as the annual charge covers more than the cost of building
Amongst other things issues with it are the fact that the private scetor needed to borrow to finance the construction and borrowing rates for private sector companies were higher than the public sector (had they been allowed to) could borrow at, private sector needed to make a profit
Many years since I advised on this sort of thing but that's broadly it.
otolith said:
SplatSpeed said:
why not just get a mortgage??
Because this way it isn't visible as public sector borrowing.This is off balance sheet Govt Borrowing. Smoke and mirrors by lying, cheating, treasonous scum to fool the thick masses that they are not placing the country in a yoke of debt which will bind future generations.
PFI rolls in an enormous amount of risk transfer from the state to the private sector, so that becomes part of the cost. In particular lifecycle and change of law costs are rolled in and the interest rate risk is swapped out.
The state generates huge legal bills on the projects because it has no idea how to procure advisors. Eg. My last PFI project was only £30m. Our legal fee was £248,000 state legal fee for the same job was £1,400,000 and my lawyers produced all of the docs.
Why you look at the return to investors 16% is about right for equity. Many equity investors look for 20%. I am fortunate as mine only look for 14%. Having asid that, the running yield on these projects is under 6% which is below the market rate particularly as a Foundation Trust does not have the full government backed covenant.
Strip out all the risk transfer, government based costs etc and the cost is spot on the design and build cost.
PFI and PPP are generally not properly understood by the media, much of the public sector and those who are not closely involved.
The state generates huge legal bills on the projects because it has no idea how to procure advisors. Eg. My last PFI project was only £30m. Our legal fee was £248,000 state legal fee for the same job was £1,400,000 and my lawyers produced all of the docs.
Why you look at the return to investors 16% is about right for equity. Many equity investors look for 20%. I am fortunate as mine only look for 14%. Having asid that, the running yield on these projects is under 6% which is below the market rate particularly as a Foundation Trust does not have the full government backed covenant.
Strip out all the risk transfer, government based costs etc and the cost is spot on the design and build cost.
PFI and PPP are generally not properly understood by the media, much of the public sector and those who are not closely involved.
blueg33 said:
PFI rolls in an enormous amount of risk transfer from the state to the private sector, so that becomes part of the cost. In particular lifecycle and change of law costs are rolled in and the interest rate risk is swapped out.
The state generates huge legal bills on the projects because it has no idea how to procure advisors. Eg. My last PFI project was only £30m. Our legal fee was £248,000 state legal fee for the same job was £1,400,000 and my lawyers produced all of the docs.
Why you look at the return to investors 16% is about right for equity. Many equity investors look for 20%. I am fortunate as mine only look for 14%. Having asid that, the running yield on these projects is under 6% which is below the market rate particularly as a Foundation Trust does not have the full government backed covenant.
Strip out all the risk transfer, government based costs etc and the cost is spot on the design and build cost.
PFI and PPP are generally not properly understood by the media, much of the public sector and those who are not closely involved.
what risk these are fixed term contracts!The state generates huge legal bills on the projects because it has no idea how to procure advisors. Eg. My last PFI project was only £30m. Our legal fee was £248,000 state legal fee for the same job was £1,400,000 and my lawyers produced all of the docs.
Why you look at the return to investors 16% is about right for equity. Many equity investors look for 20%. I am fortunate as mine only look for 14%. Having asid that, the running yield on these projects is under 6% which is below the market rate particularly as a Foundation Trust does not have the full government backed covenant.
Strip out all the risk transfer, government based costs etc and the cost is spot on the design and build cost.
PFI and PPP are generally not properly understood by the media, much of the public sector and those who are not closely involved.
SplatSpeed said:
why not just get a mortgage??
all explained by Monty Python at 1:50 
http://www.youtube.com/watch?v=arCITMfxvEc
SplatSpeed said:
what risk these are fixed term contracts!
Its a long list, but the msin features are:fixed price build
change of law - this is a big one that IMO doesnt need to be there but is circa 2.5% of the cost
occupancy
life time defects
life time availability
interest rates
the list goes on.
huge bid costs included (the tender process is very expensive and the costs are at risk of being abortive)
We are a developer of NHS real estate and our return is the 6% yield, the equity investors get 14% (relatively cheap for equity) and senior debt gets LIBOR plus a margin of about 250 bips
blueg33 said:
SplatSpeed said:
what risk these are fixed term contracts!
Its a long list, but the msin features are:fixed price build
change of law - this is a big one that IMO doesnt need to be there but is circa 2.5% of the cost
occupancy
life time defects
life time availability
interest rates
the list goes on.
huge bid costs included (the tender process is very expensive and the costs are at risk of being abortive)
We are a developer of NHS real estate and our return is the 6% yield, the equity investors get 14% (relatively cheap for equity) and senior debt gets LIBOR plus a margin of about 250 bips
SplatSpeed said:
I am odviously too thick to see it!
You are obviously too thick to spell obviously. But with regards to PFI I'm afraid I'm with you.Private Eye runs the now occasional PFI exposure and explains the finances and costs. One major problem with it is apparent now. Forces were obliged to run PFI 'initiatives' with contracts taken of 30 years and more. Come the massive cuts imposed by Cameron and PFI is there and untouchable.
In my force we closed our process units and handed them to private industry. The costs are more or less the same but, of course, with the cuts to police staff they will have less work but the contract will not allow any reduction in payments. But the revers applies. If the worklaod should go up then the police have to pay more.
My unit, the identification unit, was PFIed. What we got for a small fortune was a new purpose-built unit miles away from the town centre. So no chance of running parades. But after the negotiations were complete the legislation changed and the police could opt for video film identification. So the costs for running parades dropped dramatically. The savings to the police was £0. We still had to pay just as if every parade had 16 volunteers at the start.
It is a paper exercise where there are no savings to the police. What they had in effect to do was borrow money at high interest rates and pay it back over a considerable number of years. The money was then given to the government. My force got nothing out of PFI apart from debt.
Derek Smith said:
My force got nothing out of PFI apart from debt.
Generally the same for all PFI contracts. The state derives little benefit but at great cost.Also add in that there were some shall we say interesting accounting methods in terms of costs/benefits in order for them to be viable.
What many people forget is that PFI has delivered projects that just wouldn't have happened without it. You only have to look at the age and neglect of the NHS infrastructure before PFI came along. I have seen NHS buildings with tens of millions of backlog maintenance. One building we were asked to take on for a Trust would have needed them to pay us £10m and give us the building free for it to be commercially viable, because of the lack of maintenance and that was before all the extras that PFI brings were costed in, it was on the basis of a straight FRI lease.
Its very easy to shout from the roof tops that something is expensive without knowing what goes into it.
Personally I would rather do all our NHS work outside of PFI, I could halve my overhead and get a better (circa 8%) yield.
Its very easy to shout from the roof tops that something is expensive without knowing what goes into it.
Personally I would rather do all our NHS work outside of PFI, I could halve my overhead and get a better (circa 8%) yield.
blueg33 said:
What many people forget is that PFI has delivered projects that just wouldn't have happened without it. You only have to look at the age and neglect of the NHS infrastructure before PFI came along. I have seen NHS buildings with tens of millions of backlog maintenance. One building we were asked to take on for a Trust would have needed them to pay us £10m and give us the building free for it to be commercially viable, because of the lack of maintenance and that was before all the extras that PFI brings were costed in, it was on the basis of a straight FRI lease.
Its very easy to shout from the roof tops that something is expensive without knowing what goes into it.
Personally I would rather do all our NHS work outside of PFI, I could halve my overhead and get a better (circa 8%) yield.
But surely, thats like saying "Look at my new 50" telly!!! Without credit cards, I wouldn't have been able to buy it and would have to get a job!"Its very easy to shout from the roof tops that something is expensive without knowing what goes into it.
Personally I would rather do all our NHS work outside of PFI, I could halve my overhead and get a better (circa 8%) yield.
All it does is hocks the taxpayer up to the eyeballs. If a project wouldn't have happened without PFI then surely its because not enough tax is being raised to afford it or its just too damned expensive in the first place!
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