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NHS: Private Finance Initiative

Written Parliamentary Question to the Secretary of State of Health

Monday, February 1st, 2016
Source: 
Hansard

Stella Creasy: To ask the Secretary of State for Health, if he will publish the recorded interest rates of all PFI-financed projects in operation and commissioned by the NHS.

Alistair Burt: The great majority of funding for Private Finance Initiative (PFI) schemes (usually 90%) comes in the form of two types of senior debt – a loan from a bank or a bond raised in the capital markets.

 

The remaining cost of the project (10%) is paid in as equity share capital or equity-like loans (subordinated debt) from specialist investors. This enables projects to be financed where there are risks which the bank lenders are unwilling to bear (akin to a deposit when arranging a mortgage). Given these risks, the costs of raising this equity finance are higher.

 

The combination of these two types of finance and therefore the overall cost of raising all the finance for the project can then be ascribed an annual percentage rate which is known as the Weighted Average Cost of Capital (WACC) or more commonly the Project Internal Rate of Return (Project IRR).

 

The pre and post-tax nominal and real IRRs for equity and the WACC for all NHS hospital PFI schemes which had reached financial close from 1997 (the first) to 2009 were published as part of the Department’s evidence to the House of Commons Health Select Committee (HSC) Public Expenditure Inquiry 2009. The link is below and the information can be found at Tables 12A and 12B:

 

http://www.publications.parliament.uk/pa/cm200910/cmselect/cmhealth/269/269i.pdf

 

Another four hospital PFI schemes have reached financial close since 2009. The information related to them is not held in the form requested; to identify and collate it would incur disproportionate cost.