Angus takes the 'least risky' road

9th July 2004 at 01:00
SNP-run Angus Council has been forced to embrace the Scottish Executive's policy on building schools through public private partnerships because the alternative is too "risky".

In a week when PPP schemes received more unfavourable publicity, the party majority on the full council found itself in the embarrassing position at the end of last week of backing "with regret" the PPP route to upgrade primary and secondary schools in the Forfar-Carnoustie area.

The work is being supported by pound;3.58 million a year from the Executive over 30 years.

In doing so, the council issued a broadside against ministers and said it "regrets that the Executive will not permit the project to be procured by conventional means".

After considering a heavyweight joint report from the directors of education, finance and law and administration, the council decided to reject the option of a "non-profit distributing organisation", adopted by Argyll and Bute and Falkirk councils.

The NPDO device has proved politically palatable to critics of conventional PPP schemes because it aims to return any profits to the community rather than private shareholders. But the absence of shareholder profits, in turn, could make such schemes unattractive to the capital markets, and Angus councillors heard that even the returns to the community may be negligible.

Officials say there is a clear danger that an NPDO project could narrow the field of potential bidders considerably and put off any new players thinking of entering the PPP market.

The model also has other drawbacks and the report by the senior team of officials in Angus noted: "The expectation is that the NPDO model will prove to be more expensive for the council."

It adds: "The overall conclusion is that an NPDO-based model will carry more risk in terms of project affordability than a conventional PPP and that this risk comes in the form of marketability, time-scale and debt cost."

The report concludes: "The overall view of the authors of this report is that the potential downsides to NPDO in terms of the additional risks and potential associated costs may not be sufficiently compensated by the potential benefits which could accrue and that therefore, on balance, a conventional PPP procurement model would be the least risky way forward."

It adds, however, that this is a judgment which could change if the risks prove less significant than expected.

One major worry was the "East Lothian scenario", where the council's PPP scheme nearly collapsed after Ballast, the main contractor, went into receivership.

The Angus report suggests that rescue finance could be more difficult because of the absence of any shareholder equity. "Had the East Lothian project been based on an NPDO model, it may have been more difficult to deliver a rescue package," the report states.

Meanwhile Fife Council is keeping a nervous watch on its pound;50 million PPP project after reports that Jarvis, its preferred bidder to build nine new community primary schools and one new special unit, has hit financial difficulties.

The council says that it will not take precipitate action and points out it has not yet closed the deal with Jarvis.

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