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

Transcription

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 wellunderstood by funders and infrastructure companies 2

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 3

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

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 (nondistribution reduces incentive on shareholders to do this) Golden share - held by authority - veto over certain key strategic areas 5

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 21 st Century Schools 6

7 What went wrong? July ONS classification of Aberdeen Western Peripheral Route as on balance sheet i.e. publicowned 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 7

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 8

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 9

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 10

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 11

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. 12

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