£72 million PFI schools have cost £153 million - so far!

SPECIAL FEATURE by OUR LOCAL GOVERNMENT EDITOR

Exactly twenty years after councillors in the Borders sanctioned the replacement of three secondary schools using the controversial PFI system, research shows taxpayers have already paid more than double the construction costs of the properties with fourteen years of the concession deal still to run.

Not Just Sheep & Rugby carried out the research using Scottish Borders Council's annual accounts and financial reports issued by Scottish Borders Education Partnership Ltd., the business which manages the Private Finance Initiative on behalf of a global Group based in Luxembourg.

The latest results for SBEP show it made its highest annual profit of £851,000 in 2023 by providing operational and maintenance services, including related financial arrangements for the schools in Eyemouth, Earlston and Duns which became fully operational in 2009.

But despite the healthy returns, the report shows Scottish Borders Council could face having to pay even more following confirmation the interest rate charged by the providers has been increased for the first time in seven years. 

The fixed rate of 5.72% which has been in place since 2015 was restated at 6.92% in 2022 and was 6.24% during 2023. The hike is attributed to the impact of inflation

The SBEP accounts also show the partnership company which has no employees generated turnover of £7.607 million compared to the adjusted total of £4.927 million in 2022. Maintenance of the schools is sub-contracted under a £58 million contract signed at the outset of the project which is scheduled to run until 2038.

According to archived reports, the design and construction of the schools by John Graham (Dromore) Ltd. totalled £72.512 million, and in 2009 the council's debt stood at £75.169 million.

An analysis of financial records show that by the end of fiscal year 2024/25 next March, the local authority will have paid a total of £153.121 million, including £42.086 million in interest rate charges.

The rest of the money - £111.035 million covers reimbursement of capital and maintenance services. The council's annual bill for PFI has more than doubled from a figure of £7.491 million in 2011/12. At the same time the capital sum remaining to be repaid has fallen from £75.168 million in 2009 to £53.675 million in 2023.

According to SBC's unaudited accounts for 2023/24 the council will have to find a total of £16.694 million (including £3.468 million in interest) to meet its PFI commitments this financial year. The payment also includes £8.6 million for maintenance services and £4.623 million for reimbursement of capital expenditure.

At a council meeting on September 16th, 2004, elected members voted by 27-2 to proceed with the PFI project. The only dissenting voices were Councillor John Mitchell and Councillor Vicky Davidson.

Here is a complete list of payments (in £millions) made by the local authority since 2011/12 as recorded in financial documents produced by the council and by SBEP:

Year            Interest          Total Payment           Outstanding Debt

2011/12       3.104                7.491                         2011   72.573

2012/13       3.055                7.836                         2012   71.954

2013/14       2.963                8.330                         2013   70.554 

2014/15       2.867                8.763                         2014   68.994

2015/16       2.776                8.296                         2015   69.440

2016/17       2.742                8.488                         2016   67.851

2017/18       2.661                8.685                         2017   66.106

2018/19       2.766              10.810                         2018   64.266

2019/20       2.804              10.999                         2019   62.434

2020/21       2.830              11.457                         2020   60.168

2021/22       3.202              13.944                         2021   58.129

2022/23       3.431              15.152                         2022   55.817

2023/24       3.417              16.176                         2023   53.675

2024/25       3.468              16.694                         2024   N/A 

All profits from payments the council makes using public money find their way to Group headquarters in Luxembourg. A similar three-school PFI project in Clackmannanshire and an Aberdeen road scheme are among more than 50 'assets' controlled worldwide by parent concern BBGI Global S.A.

The ultimate parent of SBEP enjoyed an extremely successful year in 2023 with more than £55 million paid out in dividends to shareholders.

As BBGI management state in their report: "Global paid a dividend of 7.93 pence per share in 2023, a six per cent increase on 2022 returning substantial index-linked gains to shareholders".

One of the directors of SBEP - he'd been on the board for 12 years and served as BBGI co-Chief Executive Officer during the same period - retired in January 2024 not long after approving the interest rate increase for the Scottish Borders PFI.

The parent company's remuneration report reveals that the total amount received by Frank Schramm in 2023 was £1,939,768 against total remuneration of £1,593,421 in the previous 12 months.

Last year's package consisted of a basic salary of £518,444; benefits of £14,547; annual bonus £542,708; pension £77,767; and long term initiative payment £786,303. 

Critics of the PFI system were warning before SBC signed off its deal that projects bankrolled by public authorities would provide "excessive returns for equity investors". It certainly appears to be the case in this instance. 

Could the £153 million spent so far have been put to better use? The often cash-strapped authority has been forced to cut services and save millions in recent years to  balance its revenue budget.