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A69 - the £17m by-pass that will cost us £118m

PFI (Private Finance Initiative) is a way in which capital projects can be undertaken without the need for government borrowings. ThePFI, aka  DBFO (Design Build Finance Operate), company provides, or borrows, the capital required. In return they are given a long term maintenance contract.

In 1996 Road Link (A69) Ltd, a company controlled by Henry Boot plc signed a PFI/DBFO contract with the DfT to maintain the A69 trunk road from Carlisle to Newcastle for 30 years from 1st April 1997 (i.e. to 2027). They would be paid “shadow tolls” based on road traffic levels.

In return they had to construct a by-pass at Haltwhistle.

The road constitutes Area 25 of Highways England’s network.

I have been looking at the published accounts for  Road Link (A69) Ltd which can be accessed via this page of the Companies House web site. From this I have gathered the following:

The construction of the by-pass was completed by 31/03/98 and was showing as having a book value of £16,983,000.

This had been largely financed by a bank loan of £15.3 million- repayable in instalments between 1998  and 2015. The shareholders had invested only £1.8 million of their own money.

By the year ending 31/03/2000 the annual revenues of £7.9 million from the shadow tolls  were more than sufficient to cover operating costs, interest and loan repayments. A surplus was available to fund the first annual dividend payment of £1.5 million. These have continued unabated ever since.

£5.5 million was paid out in each of the last two years.

As at 31/03/17 £69 million of dividends had been paid to shareholders!

Of the shadow tolls of £11.1 million received in the year to 31/03/17  £5.5 million (49%) went straight out the back door to the shareholders!

If this rate of dividend payments continue for the remaining 9 years of the contract  the cumulative  dividends paid will be  £69m + £5.5 x 9 = £118 million.

Road Link A69 Ltd only employ 6 admin staff – everything is contracted out.  If the government had borrowed the money themselves and used the same contractors to construct the by-pass and maintain the road then the £118 million would have been saved.

It therefore represents the cost to the tax-payer of the DfT’s mismanagement of this PFI project.

A £17 million by-pass will end up having cost us £118 million!

The £1.8 million invested by Henry Boot plc in a risk free enterprise will produce a return of  £118 million. Not bad going.

 

Peter Silverman
4th January 2018

 

 

 

 

 

 

 

 

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