New evidence of large profits from PPPs

A report today exposes the level of profiteering from PPP deals, with an increased use of tax havens for insfrastrucure funds. The European Services Strategy Unit reveals a £10bn sale of shares in Public Private Partnership companies. “The level of profiteering from PPP equity transactions makes a nonsense of the original value for money assessments... PPP projects are little more than money-making mechanisms for builders and banks”, said report author Dexter Whitfield.

"If these profits had been taken into account at the evaluation stage then few PPP projects would have been approved", adds Dexter. http://www.european-services-strategy.org.uk/news/the-ps10bn-sale-of-shares-in-ppp-companies-new/

The report reveals that 240 PPP equity transactions involving 1,229 PPP projects (including multiple sales) were valued at £10.0bn in the last decade. Average profit was 50.6% in individual and group equity transactions, compared to average operating profits in construction companies of 1.5% between 2003-09, with a huge £517.9m profit from a sample of 154 projects.

• Two sectors had higher than average profits, health (66.7%) and criminal justice (54.9%) with transport (47.1%) and education (34.1%) below average.

• Sale of equity in PFI/PPP companies rose rapidly in last decade increasing rapidly from 2003 and continued largely unaffected by the global financial crisis.

• Multiple sale of equity in many projects – HSBC acquired full ownership of Barnet Hospital through four equity transactions raising its stake from 30% to 100%. The HSBC infrastructure fund is registered in a tax haven.

• Increased use of tax havens for UK infrastructure funds – 91 PPP projects with 50%-100% equity ownership with funds registered in tax havens.

• Equity in 7 large PPP projects in Newcastle was sold in the last five years, accounting for three-quarters of the city’s operational PPP projects – three have equity owned by infrastructure funds registered in tax havens.

The report recommendations include a new value for money evaluation methodology for PPPs, new disclosure requirements, a rewrite of the standard contract PPP contract with profit-sharing arrangements in equity transactions and more extensive monitoring of PPP equity transaction, and investigation of the longer-term effects of the growth of secondary market infrastructure funds.