Record profit for Borders PFI managers in 2017

EXCLUSIVE by DOUG COLLIE

The company which  manages a schools Private Finance Initiative [PFI] for Scottish Borders Council recorded its highest annual operating profit last year, topping the £1 million mark for the first time in the project's nine year history, according to newly published accounts. And the level of profit escalated by an impressive 37% between 2016 and 2017.

It means Scottish Borders Education Partnership Ltd (SBEP)., based in Maidenhead, Berkshire, and controlled and owned by an offshore investment business with headquarters in Luxembourg has so far earned more than £7 million in profits since 2009 when the PFI secondary schools at Eyemouth, Earlston and Duns became fully functional.

It has been calculated that if the management company maintains its average annual profit of £788,000 so far until the 30-year contract with the council terminates it will have pocketed some £23.6 million of Borders taxpayers' cash.

The controversial PFI scheme, used to build and deliver the three schools also costs SBC £8.5 million in capital charges and interest payments. And according to the latest set of accounts for SBEP the outstanding amount due by the local authority stands at £75.5 million (down from £76.4 million in 2016). The interest rate paid by the finance debtor is 5.47%.

SBEP provides operational and maintenance services including related financial arrangements for the three secondaries in accordance with a project agreement the company entered into with SBC. The firm will continue running the educational facilities for the period to November 2038 under a contractual arrangement that provides a regular income stream subject to deductions for service shortfalls or the unavailability of the facilities.

So far the arrangement has been extremely lucrative for SBEP and its parent company BBGI Investments SCA, part of BBGI SICAV SA domiciled in Luxembourg and listed on the London Stock Exchange. This is the record of the operating profits achieved by SBEP in each year since 2009:

2009 - £619,000; 2010 - £657,000; 2011 - £692,000; 2012 - £715,000; 2013 - £843,000; 2014 - £911,000; 2015 - £835,000; 2016 £769,000; 2017 £1,054,000. Total: £7,095,000.

Little wonder the annual report declares: "The project continues to perform generally in line with the modelled expectation, and the management of the scheme both logistically and financially remains under control. We remain confident that we will maintain our current level of operating performance and keep penalty payments to a minimum".

In 2016 the council docked financial penalties of £115,000 from the payments made to SBEP. There is no indication in the 2017 accounts as to the level of penalties, if any.

The company's turnover last year is recorded as £3.867 million (£3.551 million in 2016) while expenditure was £2.792 million (£2.747 million). SBEP Ltd has no employees and its two directors receive no remuneration for their work, the report shows.

A separate cash reserve is maintained for future major maintenance costs. The balance in this fund increased from £4.909 million in 2016 to £6.58 million in 2017.

SBEP has total borrowings relating to senior secured funding of £68.33 million of which £15 million is held by Prudential Annuities Ltd and £53.33 million by Prudential Retirement Income Ltd. At the end of 2017 the total outstanding on the loans facility was £71.936 million (2016 £72.345 million).