1. Nationalising Special Purpose Vehicles to end PFI

2. Special purpose vehicle
“Understand the weapon, understand the wound” The mechanics of the private finance initiative
Special purpose vehicle
SPV is a shell company. Private company registered at Companies House
Public authority signs PFI contract with the SPV.
SPV contracts to DBFO infrastructure.
Public authority agrees to regular payments – the ‘unitary charge’
Unitary charge consists of:
Availability charge, mainly payment of debt
Service charge (60% of total)
Public Authority

3. Special purpose vehicle
Investor consortium
Construction contractor
Facilities management contractor (maintenance and servicing)
Investment company
Consortium provides ‘equity finance’. It owns shares in SPVs; lends 10% of finance required to provide infrastructure
Consortium receives: dividends on profits of SPV +
Interest on its loan – interest rate 10-15%.
Special purpose vehicle
Public Authority

4. Special purpose vehicle
Investor consortium
Construction contractor
Facilities management contractor (maintenance and servicing)
Investment company
Consortium receives dividends on profits of SPV
Interest on its loan – interest rate 10-15%.
Debt investor: bank loans and bonds.
Interest / inflation rate swaps
Consortium provides ‘equity finance’. It owns shares in SPVs; lends 10% of finance required to provide infrastructure
Construction contractor
Special purpose vehicle
Facilities management contractor:
Hard FM (maintenance)
Soft FM (cleaning, catering etc)
Public Authority

5. Transferring ownership of the SPVs to the government
Dismantling PFI
Two elements:
Transferring ownership of the SPVs to the government
The contracts

6. Special purpose vehicle
Government
Investor consortium
Construction contractor
Facilities management contractor (maintenance and servicing)
Investment company
All equity (shares) in the SPV is transferred to the government which now owns the SPV.
Special purpose vehicle
Government pays compensation to former shareholders. This has been calculated at about £2.5bn
Public Authority

7. Special purpose vehicle now owned by government body
Government body honours outstanding liabilities but refinances loans, reducing interest rates.
Debt investor: bank loans and bonds.
Interest rate/ inflation rate swaps
Construction contractor
Public authority continues to pay to SPV that part of the unitary charge which covers debt and principal
Facilities management contractor:
Hard FM (maintenance)
Soft FM (cleaning, catering etc)
Public Authority
Public authority contracts directly with facilities contractors. Estimated savings from bypassing SPVs = £1.4bn per year, or about 14% of total unitary charges 2018.

8. In summary
UK law says parliament fixes compensation for nationalised assets. £2.5bn is full book value of equity.
As facilities management contracts expire, provision of services can be brought ‘in-house’.
No contracts are broken or terminated so no claims possible for premature termination or breach of contract.
Transferring service contracts to public authorities eliminates the SPV margin on service contracts – total annual saving of £1.4bn.
Savings of £1.4bn per year are big return on £2.5bn cost of compensation for nationalising equity.