Who makes a profit from your local hospital: a DIY guide to tracking the payments to the financial parties to PFI agreements

Transcription

1 Who makes a profit from your local hospital: a DIY guide to tracking the payments to the financial parties to PFI agreements 1. Getting started the basic details of the PFI and PFI payments for your hospital Trust Go to the Treasury PFI database and search for your hospital. Use the resources we provide [Resources HMT database] and [2013 PFI contracts] to find out: a) Name of the hospital b) Date the contract was signed or financial close c) Operational period of the contract d) Capital value * e) Purpose of the PFI (building / building + maintenance/ medical equipment / non-clinical services). (Look at project name but also look at the hospital s website) f) Names of the holders of the equity and the % of equity they hold (columns CI to CZ) These will give the initial equity holder and also whether the equity has been sold on (see also item 3, phase 2 below). g) Name of the Special Purpose Vehicle (column DA) h) The name of the company providing hard FM ie facilities management covering maintenance of the building ** i) The name of the company providing soft FM ie facilities management covering services such as catering, portering, laundry, cleaning ** j) Total repayments over the lifetime of the contract. This is in column DL of the database[2013 PFI contracts] k) Total future unitary payments column DM of the database. Create a diagram using the information, based on the simplified structure of the SPV provided in [How PFI finance works]. This will help you then to track where the money goes and to whom. *You may find that there is a discrepancy between the capital costs of the contract according to the database and what appears in hospital accounts, hospital annual reports, company reports. However, we suggest for this initial stage you use the Treasury database because this supplies the total repayments over the period of the contract and allows you to fill in parts (j) and (k) of this section. **NB: The 2013 database does not include the names of the companies providing hard and soft facilities management. However, the 2012 database does and you can find the 2012 database here under pfi current project lists March 2012 : to columns DD to DG and you will find out the companies providing hard and soft FM in What is the effect of PFI unitary payments on your Trust s finances and future viability? Use hospital reports/ annual accounts / questions to the Board to establish: a) Proportion of total income going in unitary repayments last year. b) Current Trust deficit c) Predictions of future viability. 1

2 3. Where does the money go? To find this you need to use the company and the holding company accounts of the special purpose vehicle you have identified to see what payments are paid to which companies. (NB: SPV companies are owned by a holding company with the same name [see Financing PFIs]. Phase 1: i) You have found the name of the Special Purpose Vehicle at (1g) above. Go to the Companies House website and order ( 1 per item) the most recent annual accounts for the SPV and for the SPV (Holdings) Ltd. You need to base your research searching here on the accounts of the Holdings company (sometimes call the Group company). This set of accounts consolidates the various companies set up for various financial purposes connected with the same PFI contract. Go to then Find Information/WebCHeck/Access WebCHeck/. Type in the names of the SPV you have found and click Search. A long list of companies will come up. You need to find the name of the company with exactly the name given on the Treasury database. Click on that name. The company details will come up and you can click on Order information on this company. The main document you will need will be something like Company accounts made up to 31/12/13 (or whatever the most recent date is). Then click order in the box against that company name. While you are browsing the list of documents it might be worthwhile to get the very first set of accounts also, as that might contain details of equity holdings, interest rate swaps which may not be included in the most recent accounts. When you order the document(s) you will have to pay 1 per document. It will then come up as ready and you should click on the pdf version and save it to your computer. You may have to repeat this procedure to get the accounts of the Holding company. ii) Identify the following from the SPV Holding company s annual accounts: a) Identify or confirm the equity holders. This might have changed since the last update on the Treasury database. A final sentence in the company accounts will usually state the ultimate parent companies. This might refer to the holding company, but the accounts of the holding company will take you to the equity holders. The accounts might say that during that year so much equity was sold on and to whom. b) Equity dividends that is the profit made by the SPV itself - and who they are paid to (see 4 below as this might be different from the names on the Treasury database). The SPV will pay the dividends to the holding company and whichever company (s) is named as the ultimate parent entity in the Holding company s accounts will receive the dividends. You can find the information in the Notes under Dividends and you can see the profit made by the SPV in the Profit and Loss account. c) Directors fees and who they are paid to; (Normally they are provided by one of the equity holders). Look for Management and administrative fees and who they are paid to; 2

3 (The SPV accounts may give the name of the company providing management services and you can then track who it is, who owns it using the internet it often seems to be a subsidary of one of the equity holders). d) Interest receivable; This tells you the amount the hospital paid the SPV in interest. It may be described as Interest receivable on finance debtor. e) The amount of the secured loan (the 90% senior debt which has first call on the assets of the SPV) The information and the next few questions should be stated in one of the notes to the accounts eg Loans. f) Rate of interest on the secured loan and how much was paid in the last accounts; g) The amount of the unsecured loan. h) Rate of interest on the unsecured loan/ mezzanine / junior debt and how much was paid in the last accounts and who the interest is paid to. Phase 2: Sales of equity are now common, especially once the construction phase of the PFI is finished. That is, companies sell on their share (equity share) of the SPV and in so doing (usually) make a significant profit, a process criticised by the Public Accounts Committee in 2011 i. For instance, when Carillion sold its share in the University Hospital Lewisham PFI to Innisfree in 2008 it simultaneously sold shares in three other PFIs and the overall profit it made on those four sales was 35.6m. To find out what the profit was you have to find what sales of equity have occurred. Sources here are: Treasury PFI database (see above); Internet search for news; The website keeps track of many equity sales of PFI contracts. i) Identify the profit made on the transaction and compare that, if you can with the initial share of the equity finance. 4. Is tax being paid? Are the main financial beneficiaries of the PFI contract using tax havens? To find this out involves using the accounts of the investment company/ internet searches /news items / Corporate Watch. The accounts of the Holding company may state where the ultimate parent company is registered in a final note. a) State whether the companies who hold equity or receive interest on the junior debt are registered in a tax haven. 3

4 5. Operating profit of the SPV The first table of the accounts will be Consolidated Profit and Loss Account and the first items will be Turnover / Cost of sales / and Gross Profit. This gives an indication of the profit (or loss) made by the SPV, once payments for services have been received from the hospital and the service provider paid in turn. This therefore indicates that the SPV is making a profit (or a loss, less likely) on the service element of the PFI on top of whatever profit is being made by the service provider on the contract. This in itself is a useful figure, and may well be the basis for any equity dividends paid to shareholders. 6. How to present your findings: The best way to do this is to create a table in Word that identifies usurious interest payments and profiteering which might include: Table: Where does the money go? Annual payments by.spv from unitary payments for.pfi contracts made by.trust. Item Amount Credited to Tax haven registered Equity dividends Unsecured debt interest. [See Financing PFIs] Secured debt interest for the year. See [Financing PFIs] Directors fees Fees for management / administrative services Profit on sale of equity Gross operating profit These figures should be enough for you to be able to demonstrate to local people the creaming off from public services by the private sector and especially by the equity holders of the PFI. 7. Who gets the profit, who pays the price? Combine the information you have identified here with your local knowledge of the hospital and other sources. You can state, for instance, that n million per year is paid to xxx Ltd and xxx Ltd in interest and dividends who also cream off money for management services. You can point out that profit is being made twice out of the service part of the PFI contract once by the contractor for the hard and soft Facilities Management, and once by the SPV. This in turn provides the dividends noted above. 4

5 i The public sector has insufficient information on the returns made by PFI investors and no mechanism for sharing in gains when the investors sell their shares. Partial information we have seen suggests initial investors can quickly make high profits from selling on their shares in PFI projects, indicating that the taxpayer may be getting a poor deal in the original PFI contracts. The Treasury should introduce arrangements for sharing gains on the sale of PFI equity shares in new PFI projects. We consider there is also a case for a code of conduct for sharing gains from share sales in existing contracts. A similar code was implemented on refinancing to ensure that high investor returns did not damage the prospects for the Government being able to continue to enter into PFI deals. The Treasury should agree with investors how data on investor returns, including the value at which shares change hands, can be captured and made available to the Treasury. 5