1. New forms of funding – The Non-Profit Distributing Model
Simon McCann (Partner, Projects)

2. NPD – not all that new!
Developed in Scotland 2008 (and before)
Over 20 schemes since (further education, health, transport)
Welsh Assembly Finance Committee report into alternatives to PFI/PPP 2008/9 – considered range of models - NPD was one of recommendations
Model is therefore relatively tried and tested and well-understood by funders and infrastructure companies

3. What is NPD?
Similar risk profile and structure to “traditional” PFI/PPP
BUT capped return to private sector (competed)
Operating surpluses returned to public sector or reinvested – no distribution to equity shareholders
Enhanced control / stakeholder involvement in management of the project
Similarities to PFI/PPP in whole-life costing, maintenance cycle planning, performance based service payments, single point of delivery

4. Structure * Company limited by shares (non-distributing)
Building Contractor
Service Provider
Authority
Lenders
Investors
NPD SPV*
Golden share
Surpluses
Annual unitary charge
Loan repayments
Loan
Construction price
Service payments
Appoint directors pro rata to investments
Loan and non-dividend bearing equity
-shares in the SPV mainly held by the private sector investors
- shares in the SPV stapled to the investment
Building contract
Facilities management contract
Funding documents
Project agreement
Key:
= key payments and additional information
= key documents
* Company limited by shares (non-distributing)

5. Governance
Ownership and control rests with those whose lending is at risk – i.e. junior lenders
“Public Interest Director” – appointed by Scottish Futures Trust (arm of Scottish Government) – not the authority
Compliance with good governance and NPD principles
Independent view
Re-financing opportunities and efficiency savings (non-distribution reduces incentive on shareholders to do this)
“Golden share”- held by authority - veto over certain key strategic areas

6. Welsh projects
Various announcements Mar – Sept 2015 – Welsh Government committed to using NPD for three projects –
Velindre Cancer Centre (£210M)
A465 “Heads of Valleys” dualling
21st Century Schools

7. What went wrong?
July ONS classification of Aberdeen Western Peripheral Route as “on balance sheet” – i.e. public-owned asset rather than private
Effects –
capital spend on asset has to be taken into account against capital budget – reduces overall amount available (devolved government, NHS)
capital charges against revenue budget
Chilling effect on NPD

8. What were the reasons for ONS’ decision?
Specific to AWPR - but created general issues for NPD that need to be addressed
“Golden share” – degree of control over project indicated public ownership
100% of surpluses went back to public sector (early NPD projects – surpluses went to charity or reinvested) – indicated ownership of rewards of project

9. How can we get round this?
Need to focus on reducing level of public control (whilst keeping key NPD benefit of stakeholder involvement); and
Reducing public sector share of surpluses – possibly returning to passing to charity or reinvestment in project

10. Scottish Hub solution
Scottish “Hub” model (smaller community-based NPD projects, design/build/finance/manage) accepted by ONS in November 2015 as being off balance sheet. Shared ownership of SPV –
60% private sector
20% charity
10% Scottish Futures Trust
10% procuring authority
Welsh Government liaising with SFT re: solution for Velindre – business case approval currently pending

11. Does Brexit affect any of this?
General impact on investor confidence – only time will tell. Much depends on Autumn Statement
ESA10 accounting rules re: public/private sector classification – will remain in force until Brexit happens (at least 3 years). Many countries outside EU have similar standards so unlikely to change significantly
Procurement – major infrastructure projects notoriously slow & expensive to procure. Rules will stay same until Brexit happens and then international obligations (WTO) require us to have some form of transparent public procurement – so again, little likely to change
Though NB greater flexibility under Public Contracts Regulations 2015 – particularly competitive negotiated procedure – may speed things up / cut cost, depending on how authorities use it

12. Some alternatives (particularly for HE sector)
“Off balance sheet” treatment not as much of a concern for Universities. Wider scope to consider other methods
“Asset backed” or “pension fund” route – e.g. Aberystwyth University £40M accommodation PPP with Balfour Beatty – freehold land transferred to lender, leaseback for service period
Bond issue – e.g. Cardiff University £300 million, 3%, due “General” purposes, so not limited to specific projects.

13. The Non-Profit Distributing Model – Questions?
Simon McCann (Partner, Projects)
DD:
Mob: