abcdefghij Financial Partnerships Unit NPDO Update Barry White Project Director, Partnerships UK

Barry White PUK Project Director NPDO Update

Programme Timetable Purpose Benefits Issues Other NPDOs

Timetable Argyll and Bute Council preparatory work Consultation Q OJEU March 2003 ITN June 2003 Bids Received October 2003 BaFO February 2004 Provisional Preferred Bidder March 2004 Statutory Consultation April - July 2004

Purpose To deploy a wholly debt based capital structure on a schools PPP which ….. 1.Improves stakeholder acceptability and participation 2.Achieves at least as good value for money as traditional “equity” based PFI

Principles 1.Minimum disturbance to traditional equity based schools estate PFI business model consistent with the objectives 2.Follow Scottish Executive guidance on standard form schools PFI contract to maximum extent possible 3.Achieve broadly similar levels of risk transfer as under traditional PFI in order to achieve the required accounting treatment 4.Surpluses arising are applied to the benefit of Authority education services 5.Risk profile and corporate governance acceptable to financiers 6.Management incentives consistent with stable and sustainable performance

Outline Structure Junior Capital Senior Capital CouncilSPVCharity Sub-Contractors Service Contract Donations

Key Features – Public Sector SPV board policies: 1.No dividend distributions 2.Surpluses applied according to agreed priorities 3.Having satisfied all statutory and fiduciary duties, SPV’s objective is to deliver value-for-money to the Authority Agreed priorities for application of surpluses: 1.Management incentives 2.Build-up reserves 3.Additional scope of services pre-defined under the Contract 4.Donations to the charity

Key Features – Private Sector a. Sub-debt will have different characteristics to that used in traditional PFI model – risk and reward balance must be maintained b. Total debt service coverage ratio protects sub-debt and senior debt c. First “hit” borne by reserve accounts d. Refinancing still available for SPV to recover from under-performance

PFI – v – NPDO Senior Debt Sub Debt Equity Distributions Sub contractor profit Senior Debt Sub Debt Management Incentives Surpluses Sub contractor profit

Benefits Financial –Value for Money –Clarity on risk Non-Financial –Wider benefits –Stakeholder involvement Alignment of interest

Issues Novelty SSSC Amendments Evaluation

Legal –Corporate Structures Financial –Surpluses –v- low UC –Management incentives Technical –Diligence more important

Other NPDOs Market opening for new areas of PPP Partnership more pro-active and stable within a supportive stakeholder environment Improved perceptions and good news stories about PFI/ PPP PPP evolving alongside standardisation Interest from other LAs/Countries

NPDO Update Thank you for your attention