Rich pickings from council's £11 million PFI payment

EXCLUSIVE by DOUG COLLIE

The company running the controversial Private Finance Initiative [PFI] project which built three Scottish Borders secondary schools recorded a £1.1 million operating profit last year and sent a £380,000 dividend to its parent group based in Luxembourg.

These are among the financial statistics contained in the annual accounts of the Scottish Borders Education Partnership Ltd. (SBEP), a business with no employees and which shares a registered address in Maidenhead, Berkshire with a multitude of similar PFI ventures.

In 2020/21 Scottish Borders Council will pay £11.457 million towards the cost of funding and maintaining its secondary schools in Eyemouth, Duns and Earlston which were completed in 2009. The deal with SBEP runs until November 2038, and according to the council's latest annual accounts a further £260 million worth of payments is outstanding.

The £11.457 million is made up of  £5.401 million for services, £3.226 million goes towards reimbursement of capital expenditure and £2.830 million is needed to cover interest payments. The total paid in 2019/20 was £10.999 million. Council figures also show further interest payments over the lifetime of the agreement will come to £42.271 million.

Council pay-outs for PFI have escalated sharply over the last five years. Audited accounts for 2014/15 showed the total bill was £8.296 million comprising £5.520 million for repayment of liability and service charges plus £2.776 million in interest charges. It means this year's costs are 38% higher than in 2014/15.

SBEP sub-contracts the maintenance and operation of all three schools to Amey. That 30 year deal, struck in 2008 was worth £58 million to the company. Amey was part of a consortium which persuaded councillors to sanction the expensive arrangements with German PFI specialists Bilfinger Berger BOT as lead promoter and sponsor, together with Ulster-based Graham Construction.

Amey is responsible for facilities management of the three schools including buildings and grounds maintenance, security, caretaking and cleaning.

The massive contract provides a regular income stream to SBEP Ltd subject to deductions for service shortfalls or the unavailability of the school buildings.

The newly published accounts for the partnership show an operating profit of £1.111 million on turnover of £3.837 million. Administration expenses totalled just £17,000. The overall profit was up from £945,000 in 2018. SBEP directors Albert Naafs and Frank Schramm were able to approve and pay dividends of £380,000 (2018 £259,000).

Looking to the future the report says: "The project continues to perform generally in line with the modelled expectations and management of the scheme both logistically and financially remains under control. The directors remain confident that the company will maintain the current level of performance and keep meeting the obligations under the contract".

Among other facts recorded in the report are cash at bank and in hand £4.192 million (up from £3.727 million at the end of 2018) and "interest is imputed on the finance debtor (Scottish Borders Council) using an asset specific interest rate of 5.27%".

Meanwhile SBEP has loans totalling £68.330 million with Prudential Annuities Ltd and Prudential Retirement Income Ltd with a 2.604% index-linked coupon.

All of the share capital in Scottish Borders Education Partnership is held by Scottish Borders Education Partnership (Holdings) Ltd., also registered at the same Maidenhead address. In turn 100% of the shares in the holding company lie with BBGI Investments S.C.A., an indirect and wholly owned subsidiary of BBGI SICAV S.A., both registered and domiciled in Luxembourg.

The BBGI conglomerate control a significant number of PFI projects throughout the United Kingdom.

A report prepared for the Scottish Parliament in 2018 calculated the annual amount local authorities in Scotland pay to various PFI operators for the use of school buildings constructed under the system totalled £434 million, equal to almost ten per cent of the education budget.