Can Sir Angus Grossart win over the sceptics to the SNP's answer to PFI, asks Terry Murden
SIR Angus Grossart is barely able to stifle a typically mischievous giggle as he explains his reasons for taking up his latest appointment. "It is not a career move and I am not looking for a medal," says the newly appointed chairman of the nascent Scottish Futures Trust (SFT), the Scottish Government's substitute for the controversial Private Finance Initiative.
Grossart's credentials as a veteran of the Scottish business sector has convinced ministers that he is the ideal candidate to make it work. But even with his role and that of the organisation he now heads still under discussion questions are being asked about whether the SFT has been properly thought out.
Doubts have been cast about the Government's attempts to reign in the potential for profiteering and whether its good intentions will smother all attempts at getting the private sector sufficiently interested.
"No companies will want to get involved with this because it is unworkable," said a source at one funding institution, explaining that the cap on profits would unreasonably restrict the potential returns.
The scope for making profits has been at the root of the initiative since it was set up by John Major's Tory government in 1992 as a way of raising money for big public sector projects such as schools and hospitals. By sharing the cost with the private sector, the Government said it would ease the burden on taxpayers while ensuring these big cap-ex schemes got beyond the drawing board.
But since the birth of PFI and its rebranding by Labour as the Public Private Partnership (PPP), the programme has been dogged by claims that the private sector has been milking the taxpayer.
Stories of excess have abounded. Some forecasts said that local authorities, health trusts and other private companies could pocket up to 50bn in profits from investing in schools, hospitals and other public building projects through the scheme. Those who put 500,000 of equity into the Edinburgh Royal Infirmary expect to secure dividends of 168m.
Economists Jim and Margaret Cuthbert pored over mountains of documents obtained under Freedom of Information to discover what they called "eye-catching" returns. Jim is a former chief statistician with the Scottish Office, while Margaret was an academic at three Scottish universities. The Cuthberts' calculations revealed that the projects offered poor value for money. The Edinburgh Infirmary, Hairmyres and James Watt College at Kilwinning in Ayrshire could have been built for half the cost if the money had been borrowed through the usual Government procedures, they found.
The SNP promised to reform the programme north of the border and essentially to rid it of this element of profiteering. Its SFT alternative would be a not-for-profit version of PFI and, according to Finance Secretary John Swinney, would benefit Scotland by finding 150m of savings.
But critics have been quick to take shots, accusing Swinney of failing to come up with detailed proposals, including a timetable for rolling out the programme. Some felt that Swinney appeared to be seeing Grossart's appointment as enough in itself to assuage concerns that the initiative had ground to a halt under the SNP administration.
There were also questions about why, if the SNP was so concerned about value for money, it was creating a quango to run the SFT where none previously existed. Estimates say it will start life with a 17m bill in running costs. Ministers say this will be worth it, if the promised savings come through and the Government is determined to make it accountable for what it does.
But with many interested parties – from construction firms to local authorities – confessing they were no nearer understanding how it would work, the vacuum created an opportunity for critics to ask if it would ever get off the ground.
Michael Levack, chief executive of the Scottish Building Federation, warned that the industry had gone beyond the critical point in waiting for projects, claiming they had ground to a halt.
He claimed that the banks had scaled down or scrapped their teams working on the initiative, though HBOS said it still had a pipeline of deals and would look closely at the details of SFT when they were revealed. None of the other banks were prepared to speak publicly about it, mainly because they were as much in the dark as everyone else. But whoever is working on the programme will almost certainly be doing so in London as that is where the banks' now base their infrastructure teams.
There were, however, whispers of concern that the scheme was floundering and the not-for-profit ideal would have to be reviewed if companies were to be drawn into it. It is understood that the Government has asked the accountant PricewaterhouseCoopers to take a close look at it.
"If the costs of funding rise close to or above the capped rate of return it will not offer enough upside," said one source. "There needs to be reward as well as risk."
Typically, each project is developed and managed by a consortium, usually consisting of a builder, a facilities management firm and a financier. Three projects have been signed using the new model and two further projects (NHS Tayside and Moray Schools) are in procurement.
What is known about the SFT is that although it is nominally a not-for-profit programme, profits will be capped, something that critics believe will have to be reviewed to ensure co-operation from the private sector.
Grossart, 71, chairman of the merchant bank Noble Grossart, and a former chairman of the Daily Record and vice-chairman of Royal Bank of Scotland, is only acting chairman of the SFT and has agreed to hold the post for a year when it will be reviewed. A board will be appointed by the minister, while Grossart will employ his extensive contacts to help find a chief executive, though the job will be advertised. As an arms-length body, set up as a limited company, it will be given a mission statement and a budget and then left to run itself, effectively beyond day-to-day control of Government.
Grossart's investment banking background, and his extensive list of directorships of Scotland's top companies means he will need little guidance in seeking out the right candidates and bringing the various players together. Yet he knows that nothing can be taken for granted.
"There is no magic wand to make it happen quickly," he says, "but there is much to be achieved by finding a better combination of private and public sector talents and resources. I am ecumenical in my approach and the challenge is to find the right balance between private sector profits and more value for the public sector."
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