Date lodged: 15 December 2016
To ask the Scottish Government for what reason the private consortium building the new Dumfries hospital is charging an interest rate of 11.3%, and what its position is on whether this represents value for money.
Answered by: Derek Mackay 11 January 2017
The interest rate that applies to subordinated debt for Non Profit Distribution (NPD) projects is commercially sensitive and covered by a confidentiality agreement until 2 years after construction handover, however all NPD contracts were competitively tendered. Typically subordinated debt is approximately 10% of the total finance and this is generally the investment that is most at risk. The remaining 90% of the project investment requirement on this project is sourced from 'senior lenders', such as the European Investment Bank and an institutional funder which lend at much lower rates.
The capped return for NPD projects are much lower than National Audit Office published information* from 2012 which showed an average tendered uncapped base-case return for PFI models of around 14% to the equity investors.
*Reference for info:
The National Audit Office undertook a study entitled “Equity Investment in Privately Financed Projects” published in February 2012. In relation to the higher risk project investment requirement, it shows an average tendered base-case return of around 14% to the equity investors; under PFI this is an uncapped return.