[A-List] UK corporate state: business as usual
Michael.Keaney at mbs.fi
Tue Mar 12 02:03:56 MST 2002
Jason Nissé: They say PPP has hit the buffers. But £20bn says they're
way off course
Independent on Sunday, 10 March 2002
I don't usually quote others in this column. But I can do no better than
repeat the words of David Metter, chairman of finance house Innisfree.
His firm is one of the largest investors in what the Government calls
public-private partnerships (PPP) or the Private Finance Initiative
(PFI), depending on who's spinning. Last week a bunch of investors in
Railtrack wrote an open letter saying the Government had lost its
credibility in the financial markets after the Railtrack debacle and
that investors would shun Government deals. Mr Metter's response: "I
don't really believe that Railtrack has had any impact, but it has been
useful for some people to say it has."
Since Railtrack was clumsily forced into administration by Stephen
Byers, 19 PPP deals have been finalised. A further 60, including the
huge £14bn deal to sort out London Underground and two other big
transport schemes, are at "preferred bidder" status: the bids are in,
the winner has been selected, and the final details are being sorted
out. Leading bankers and advisers, such as Barclays Capital and
PricewaterhouseCoopers, say there has been no change in the price
changed for finance in PPP deals. Hardly a buyers' strike.
What the "people" who find it "useful" to say the Government has lost
its credibility ignore is that Railtrack was a private company. It may
have been sold by the Government, may be regulated by a Government
officer, may depend on the Government for a large proportion of its
income, but it was a quoted plc. If quoted plcs do not do their job
properly, they go bust and equity investors lose money.
The way Railtrack was forced into administration was ham-fisted. Mr
Byers took the view that banks and bondholders should be protected and
equity investors could go to hell. Tactically this was an error.
Strategically, though, it was wise.
As the Treasury (which after all pulled the strings in the Railtrack
collapse) knew, you need debt investors for PPP deals. The equity mostly
comes from the companies taking on the project. And the Treasury needs
to keep the bond investors happy, or it would either have to put up the
money itself or guarantee the debts. This would mean the deals would
appear on the Treasury's balance sheet.
You can view PPPs as off-balance sheet financing of government projects.
This is not necessarily a bad thing. There is a big difference between
the Rolls- Royce school of joint ventures - where there is a business
reason for the off-balance sheet vehicle and the removal of debt from
the books is a happy byproduct - and the Enron model, where sautéing the
books is the primary purpose.
PPPs not only massage the Treasury's figures but, correctly constructed,
transfer risk to the private sector and ensure jobs are done on time and
without extra cost to the taxpayer. Since Labour came to power, nearly
500 PPP deals have been struck, investing over £20bn. The technique is
being exported - look at how the Dutch are financing their high-speed
This is the way the Government does business. Private sector firms can
either bitch about Railtrack and walk away, or bitch about Railtrack and
still bid for deals. Most would choose the latter.
Full article at:
Mercuria Business School
michael.keaney at mbs.fi
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