James' addiction

2 March 2011 James Stewart is passionate about infrastructure and has been at the heart of the partnerships industry for two decades. Paul Jarvis caught up with him at a recent Partnerships Bulletin event
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James Stewart divides opinion. To some, he is the man who has driven the partnerships agenda over the past ten years and more, helping ministers and civil servants alike get to grips with how to get private investment into public infrastructure.

But to others, he is someone who has not done enough to embed public-private partnerships in the government psyche, and has sometimes allowed complex procurement rules to grow up around the partnerships programme. Those who are disappointed with his reign point to competitive dialogue, and the failure to deal with it sooner, as a major factor in PFI’s continuing battle for credibility.

To the cynical, he is even described as a man who managed to carve out a niche for himself as indispensable to the emerging PFI and PPP industry. He moved quickly into a vacuum to provide the answer to the Labour government’s problem of keeping its promises to invest heavily in infrastructure without raising taxes.

But now that he is leaving his position as chief executive of Infrastructure UK (IUK), does Stewart himself think he’s done enough to champion the industry?

“Absolutely,” he responds without any equivocation. “I don’t think it was a coincidence when the chancellor in June 2010 said ‘we want to invest in infrastructure to produce economic growth’.

“I think the fact that IUK exists and the debate that happened as part of the set-up of IUK, were both contributors to getting politicians to recognise that infrastructure is vital.”

Speaking after giving yet another presentation on the future direction of UK infrastructure, Stewart is relaxed and in a familiar position. Since being drafted in to head up Partnerships UK (PUK) back in 2000, Stewart has regularly been the face of the industry, both through public speaking events and in his dealings with ministers and other officials in private.

“One of the challenges of this role is sitting within a public sector environment – and even in PUK I was sort of sitting on the public sector side of the fence. In Infrastructure UK that’s even more clear cut,” he reflects.

“Part of this role is bridging the gap between the public sector and the private sector. At times you have to deliver tough messages connected with government policy.”

Stewart started his career firmly in the private sector with the like of corporate finance powers Hambros and Societe Generale. So he has a strong understanding of what private clients want to see from government infrastructure programmes.

Having been, in his own words, “one of the early pioneers” in the PFI industry during the early 1990s, Stewart was approached in 2000 to head up the new, majority private-owned organisation Partnerships UK. “

Although it was the successor to the Treasury taskforce, it was new – completely new,” he says. “No-one actually knew whether it was going to work, this concept of charging public sector people for what it did. But the one thing I did know was that infrastructure was going to be a growth market.”

And so it proved. With Stewart at the helm, PUK’s balance sheet grew from £45m to £70m at its peak, he points out. Furthermore, it delivered a raft of massive infrastructure schemes, from the Lift model in primary health, through the Building Schools for the Future initiative and the waste programme. “

Given that PUK as an operating model was completely new, and many people at the start said it would never work, I think actually making PUK successful as a business was quite an achievement,” he adds.

Nonetheless, he remains convinced the organisation’s demise and to some extent transformation into IUK was the right thing to do. “All through PUK’s existence, its job was to act as a catalyst to open up new markets,” he explains. “But once those new markets had reached steady state, it was to come out and redeploy the resource in new projects and new areas.”

The arrival of the new government, and the new economic challenges that the country faces, meant economic infrastructure has become “the greatest challenge” in the UK today. Establishing IUK was an important step in the transition, he says.

Top talent
But one of the great benefits often associated with PUK was its ability to bring in the best, unconstrained by government pay structures. Is there a danger that will now be lost at IUK – and could Stewart’s own departure signal an exodus of talent?

“I hope not,” he replies, while admitting there’s always a risk that might happen. “But you can have this debate endlessly about what is the best way to capture private sector skills in a public sector environment.”

He points to the Shareholder Executive, which was set up in 2003 and sits within the business department. “It has a very high quality chief executive and a really good team. They’ve managed to recruit and retain good people.”

More important than the money on offer, he argues, is the chance to be at the centre of infrastructure policy. “It is absolutely fascinating and stimulating to sit within government looking across the infrastructure sector, and to have some ability to influence the strategy and the delivery.

“And that is the addiction,” he adds. “People are genuinely interested in that sort of job.”

Not everyone agrees, of course. There are increasing rumblings from the private sector that they will begin to move people abroad, thereby depleting the pool of talent on which government so often relies.

Then there are the persistent concerns over the lack of  understanding across the public-private divide. A recent report from the Commons public accounts committee called for greater support for the public sector when negotiating contracts, to improve their ability to negotiate on an equal footing with private bidders.  

And at the end of last year, Treasury guidance suggested introducing more training for public sector officials to improve their understanding of partnership contracts and of how to work with the private sector.

It is a problem that Stewart acknowledges. “My experience is that there is a real problem both in the private sector understanding how government works and in the government understanding how the private sector works.”

He points to his own experience, commenting that during his ten yeas at PUK, he was in and out of the Treasury on a weekly basis. “But until I actually came and worked inside the Treasury at the beginning of 2010, I didn’t really understand how a central government department works,” he admits.

“The way a central government department works, with the ministerial team, and the civil service team, is pretty unique. I certainly didn’t fully understand until I arrived here, and that’s been a big learning curve for me over recent months.”

That may make the job of finding his successor all the more difficult, as IUK will be keen to seek out someone with a similarly broad knowledge of the two sectors. It may even point to someone from within IUK being the natural successor.

For the moment Andrew Rose, head of the unit’s financial markets group, will be taking over from Stewart as interim chief executive, but it is believed he has not put himself forward for the full-time role.

Defending the cause
Criticisms of PPP extend far beyond this single issue, though, as Stewart well knows. Over recent months, the attacks have returned with a vengeance, with a series of articles in the mainstream press digging up projects that went wrong, or simply ones that cost a huge sum of money.

Stewart is typically sanguine in his response. “I’ve said consistently over the last 10 years that you should judge the merits of the PFI/PPP market not on the top 10% of deals, not on the bottom 10% of deals, but on the middle 80%,” he says. “It’s a very, very arge market.”

More than that, Stewart says it’s important to focus on the output. “The great thing is that over the last 15 years, we’ve built hospitals, schools, roads, decent accommodation for government that perhaps wouldn’t have been built under an alternative procurement method,” he points out. “That’s what I like to remember.”

Stewart may well spend some time reflecting on his time at the heart of government, too. He’s unlikely to be taking up another role in the public sector. “I think I have the best infrastructure job in the public sector,” he claims. In the current climate, it’s unlikely everyone would agree. “I love infrastructure, it’s a booming sector,” he persists.

So why leave? “When I was asked to do the chief executive job at IUK, it was made clear – and I was quite happy with this – that at some stage a competition would have to be run for the permanent appointment.

“The decision I had to make was do I commit to another two or three years or not – which is the minimum if you’re going to hold a permanent position. And I’ve decided I’ve done this for 11 years, and it’s time for a change.”

He insists, though, that his decision is a “positive” one, and not a negative reflection on IUK or his own position.

In the short-term, his departure will also give him some more time with his four children, as he bides his time before entering a new job. And he can also indulge his passion for walking – he once scaled Kilimanjaro and admits to enjoying a challenge.

But without that kind of drive – and without necessarily a clear role once the next National Infrastructure Plan is published – is there a danger that IUK will become an irrelevant body?

Stewart argues there is much more to the organisation than simply publishing and updating the plan year after year, as some have feared. “I don’t think we anticipate a rewrite in 2012 and a rewrite in 2013. I think the 2011 plan will stand the test of time. It needs to be a long-term document, so we’re not going to rewrite it every year.”

He points out that an increasingly important role for IUK will be enabling investment, given that the plan itself suggests 75% of overall investment will come from the private sector. “Under that heading would come improving the planning regime; the internal review on extending the regulated asset base model; the green investment bank; encouraging inward investment; [and] encouraging new sources of capital.”

But it’s not an exhaustive list. “They will change over time – we will do a piece of work, we will report on it. We may be responsible for the implementation; [or] we may actually be encouraging others to be responsible for the implementation.”

Stewart also refers to improving delivery, which includes looking at new procurement models – such as the work going on to consider how the regulated asset base (RAB) model can be applied in other areas.

“That work has made us think in a slightly different way about the PFI model, in the sense that if you apply the RAB model insome sectors, it is an alternative to PFI,” says Stewart.

Others in the industry would disagree, arguing that getting upfront capital investment into projects via a RAB approach will be far more difficult than using PFI – and not necessarily any better value for money. Stewart admits there are “differences” in what the two models offer, but seems genuinely encouraged that RAB can provide an alternative to PFI in some areas.

New world
And as for traditional partnerships work, such as schools and hospitals, Stewart argues
traditional players in this area are already doing well at transferring across to new sectors. He points to the Offshore Transmission Owner (OFTO) contracts, which have seen the architecture of traditional PPP transported over to them.

“A lot of PFI technology has been imported into that market. A lot of the contractual approaches are very similar,” says Stewart,  adding that it’s the “same old” suppliers, contractors and banks getting involved. “[This] has helped get that market moving extremely quickly – much more quickly than would have been the case 15 years ago,” he claims.

Stewart is also bullish on the prospects for the traditional PFI and PPP market. “There has been a reduction in spending in some of the social infrastructure areas – or less compared
to economic,” he admits. “Having said that, the UK market is coming off a very high base compared to other European markets.”

Despite this upbeat assessment, though, many are sceptical about IUK’s potential to bring through a strong pipeline of investment opportunities for the industry in the coming months and years. Critics point to the rising deal flows in other markets – particularly the likes of Canada, Australia, France and potentially the US – where there is a thirst for knowledge and expertise on PPPs.

That, though, may soon be an opportunity for Stewart, rather than his problem. When talking about his future, he expresses an eagerness to “get some exposure to other parts of the world”, including the likes of China and India.

But we may not have seen the last of him working with central government. “At some stage I might come back to the public sector again,” he says. “I’m well set up to do that.”  

This page was last updated on:
9 March 2011.

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James' addiction

James Stewart is passionate about infrastructure and has been at the heart of the partnerships industry for two decades. Paul Jarvis caught up with him at a recent Partnerships Bulletin event

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