Past event

BPCC shows Polish MPs how PPP works in Britain

The Polish-British Parliamentary Group, at whose meetings the BPCC has often participated since 2005, turned to the Chamber for help in organising a PPP study visit to London for its members.

Keen to promote British best practice in the field of PPP, the BPCC helped out by arranging a two-hour-long meeting at HM Treasury with senior staff from InfrastructureUK, which was followed by a visit to Bart's Hospital, a £1.3 billion project being built as a public-private partnership.

The Polish delegation, led by MP John Godson, was interested to hear about the UK's lessons learned from 20 years of using PPP – or PFI (Private Finance Initiative) to deliver public infrastructure using private capital.

Since the current coalition government took office in May 2010, the way PFIs are delivered has been comprehensively reviewed in a document entitled A New Approach to Public Private Partnerships. The new, improved version of PFI, dubbed PF2, is the result of the review.

Owain Ellis from InfrastructureUK, the part of HM Treasury responsible for PPP, explained to the Polish MPs how the UK new approach to PPP had resulted in a change of focus. Rather than using PFI to shift major infrastructure spending off balance sheet (and hence out of public sector debt), PF2 will focus on delivering greater value for tax payers' money.

There will be a greater emphasis on standardisation of contracts – a school sports hall is like any other school sports hall, a waste treatment plant like any other waste treatment plant – so the contracts to design, build and operate such facilities should be standardised to avoid the need to reinvent the wheel. Any departure from a standard contract requires a derogation. By centralising and standardising on best practice, project specifications and expected outcomes, greater value for money can be obtained.

The Polish MPs heard that at the heart of the PPP system is the notion of the unitary charge – a single monthly payment from the public sector (local authority, government agency or ministry) to the private sector consortium that's designed, built, financed and operates a given piece of infrastructure. The unitary charge includes payment for the construction, costs of financing, and ongoing costs of maintaining and operating the infrastructure.

Mr Ellis explained that for projects with a capital value of between €50m to €200m, PF2 is the preferred method of delivery. There are thresholds for Treasury involvement as the major projects authority, review new projects at gateway stage. It was noted that as yet, Poland lacks such a major projects authority. The business case should be approved by such a central unit; it should also consider the role of the project, its governance, affordability and value for money. The central unit should also promote best practice, build the market, and refine the process, the MPs heard.

The quality of the procurement process is key; bidding will result in a monopoly for 20-30 years. So the process must be thorough and transparent. An open competitive dialogue is an essential in the procurement process.

An object that costs €100m to build will cost the tax payer in the order of €300m over 25 years; that includes the costs of finance and the costs of maintaining the object to the highest standards over that period.

Another lesson learnt in the UK was about sharing the upside: where a project is refinanced part-way through the contract period, and that refinancing results in a profit, that profit is to be shared equally between public and private partners. To date, the private sector exclusively has reaped the rewards of refinancing.

After the meeting at the Treasury, the delegation moved on Bart's Hospital, currently being built by Skanska. The Polish delegation was impressed by the high standards of health and safety on the site of the specialist heart and oncology unit; each patient will have their own room - and in a NHS hospital. The £1.3 billion redevelopment of Bart's is the largest and most complex hospital redevelopment project in the UK. It is being financed by Innisfree, an investment group that invests in long-term public-private infrastructure. Many thanks to Marzena Rytel from PwC in Warsaw, who facilitated the introduction to Innisfree.