Insider Round Table Event - Public Private Partnerships?
18 November 2009
Mutual advantage
Jeremy Williams and Deryn Rees from M&A hosted a joint PPP- Round Table event with the Insider at the County Club in Cardiff. Below is a summary of the discussion and the Insider article:
The Welsh Assembly Government wants more partnerships with the private sector.
So what stage is Wales at, and how does our experience compare with other countries?
Is Wales following a different path to other parts of the UK on publicprivate partnerships (PPPs)?
Jeremy Williams We are on the same path but at a different pace. A lot of progress has been made over the past 18 months through recommendations made by the finance committee at the Assembly. Those have been endorsed by the finance minister, who acknowledged that PPP is now a tool in the procurement box. Partnership Wales will manage projects and offer advice and training; and there will be a national strategic programme for the delivery of these projects. Capital expenditure is going to be reduced, and that may be an opportunity to present new and innovative PPPs.
David Richards Wales has always had a tradition of working closely with the private sector. We tend to
take that for granted in areas such as regeneration. The cabinet is committed to exploring innovative
ways of looking at funding investment in infrastructure, subject to the commitment to no private finance
initiative (PFI) in the NHS in the lifetime of this National Assembly. We’ve been getting on with it with on
waste and schools, and we are taking on people from the private sector.
Brian Morgan When you innovate in response to a crisis you are far less likely to get it right than if you do it as part of a programme of improvement. That’s the problem – we had a period of the past ten years where a really effective PPP or PFI unit could have been working in the right direction. It’s a wasted opportunity.
Philip Russell Wales could use the position to its advantage. It’s much easier to draw on the experience
of people who have been through the process.
What lessons can be drawn from projects elsewhere?
Russell I’ve been involved in four projects. We had a catastrophic failure in Hampshire, which kickstarted
a lot of the things you need to do in terms of community engagement. Irrespective of the method of funding, community involvement is pivotal its success. What has grown in England is the Waste Infrastructure Delivery Programme (WIDP). As a local authority you can get a consistent view and there is a lot of best practice guidance available there.
John Seed In Australia, no two states do PPPs the same way, so the private sector is in danger of going to work somewhere else. But Canada dipped its toe in the PPP water many years ago in British Columbia. They built skills and paid salaries that were commensurate with salaries in the market, so that people did not leave. When Quebec and Ontario wanted to do PPPs they went to British Columbia and borrowed their people, and followed the same model. Now there are 45 active PPP projects in Ontario.
Richards One of the big themes that finance minister Andrew Davies wants to drive through is raising the skills of the public sector so we can be a more intelligent customer and get best value out of these deals.
Morgan Scotland went through 60 schemes looking at the good points and the bad points, and came up
with a balanced scorecard. There was lots of evidence that PPPs had resulted in huge improvements in
time to delivery, getting in budget and life cycle cost.
Russell We’re involved with stakeholder groups, so when we get the bids in that is how we evaluate them. That is a powerful tool when you go in for planning.
David Rosser PPPs can spur improvement in the rest of the public sector. Only 10 per cent of prisoners
are in private prisons, but the National Audit Office reckons PPP has transformed the performance
and regime in the whole system.
Neil Brierley I’m concerned that it has been put out that PFI (in healthcare) is a bad thing. I’ve been looking at the Hub initiative in Scotland and the way they are trying a more integrated approach. The public sector has a share in it so the perception that the private sector is creaming everything off is overcome.
Colin Hockley A lot of projects would not happen without PPPs. Some projects are so complex that to do
them in phases would be almost impossible. It seems to be a bit disingenuous to say no to PFIs in the NHS when you look at what is happening in primary care.
Marc Evans We’re involved in two education deals at the moment. One is working successfully, the other isn’t. It’s all about creating that strategic partnership.
Steve Thomas Wales is not a PFI desert. There are lots of PFIs out there. As public expenditiure grew, PFIs started to get a bad reputation in the Welsh context. There was a reluctance to go down that road and local authorities that had not done PFIs were complaining about the local authority settlement being topsliced to pay for projects that weren’t in their area. Now the mood music is starting to change back. There has been a change in mindset. Now is the time to get your foot in the door.
Brierley For an organisation to be successful you have to surround yourself with the best people. The public sector has to realise that to deliver the high-quality services they want to, they will have to surround themselves with the private sector.
Thomas We’ve got to build this dialogue nationally, locally and regionally, and build trust.
What are the advantages of using PPPs?
Seed Value for money, but you only achieve that if you achieve innovation and the proper level of risk transfer.
Morgan It brings in innovation. That’s why the mindset is so important – you need a mindset that welcomes PPP across the board. There can’t be any no-go areas.
Rosser We need to move from on the idea that PPP will just be tolerated because it brings cash. Richards I don’t think the Welsh Assembly Government is taking the line that PPP will just be tolerated. It wants a lot of investment in infrastructure.
Williams Does it bring cash? The banks are not opening their chequebooks like they used to.
Rebecca Pritchard Banks no longer have the ability to syndicate their debt, so they are only willing to lend what they can hold on their own books. But deals are being done. Sub-£200m deals are still achievable. Above that level, you start getting into difficulties. The pricing is high relative to two years ago, and that is causing public sector bodies to look at combining bank funding with other contributions to reduce the cost of debt, while retaining the innovation that PPP brings.
Morgan In Germany now they are finding innovative ways of raising money through the bond market, and
it seems we should be looking at the bond market to raise finance.
Richards We’re looking at the feasibility of a housing bond forWales, so social landlords can draw down
some funding and invest more.
Deryn Rees Value for money changes over time, particularly with the way technology develops. Whether you are getting value for money in year ten or year 25 can change. The situation has led a lot of local authorities to question whether they are getting value for money from the banks in particular. I’m not sure the PFI structure properly deals with the way the banks fit in with the transaction.
Russell You’ve got to say to yourself, are we doing the right thing, and does this feel right? Where it is wrong is where you get a team of people who just blindly follow it like a faith.
Rees People don’t like to admit they have signed a dud deal, and there is a lot of work to be done to assess how these projects are working. A lot of NHS trusts are trying to get out of contracts they have signed.
To view the original article as it appeared in the Insider please click here