20 March 2019

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Reinventing the Scottish wheel

As Scotland looks to Wales for PPP ideas, the industry may be starting to look up north of the border
Reinventing the Scottish wheel

There was something rather ironic in Scottish First Minister Nicola Sturgeon's announcement in her Programme for Government speech that the Scottish Futures Trust would be examining new approaches to financing infrastructure, “such as the Welsh government's mutual investment model”.

After all, it was only three years ago that the Welsh government was developing a pipeline of projects designed to be similar to Scotland's non-profit distributing (NPD) model – indeed, the Scottish Futures Trust (SFT) had been advising Welsh officials on how to develop the model.

But then came Eurostat's verdict that NPD schemes could no longer be considered off the public sector's balance sheet and for the devolved administrations, that was the end of the model's usefulness. Scotland's pipeline was put on the backburner, while in Wales the programme was delayed as officials went back to the drawing board – or at least back to the project documents to make some important tweaks. As one source describes it, the mutual investment model (MIM) that emerged is a bit of PFI, a bit of NPD, with a Welsh dragon thrown in.

Nonetheless, it is clearly good news for the people of Scotland and the infrastructure community that the Scottish government has not been so arrogant as to ignore what has been happening elsewhere, and is now willing to explore models that will kickstart its pipeline once again.

The question now is where this exploration will take the SFT and Scottish infrastructure ambitions.

Whereas Wales has been treading exceedingly cautiously with its pipeline – just one road project tendered, a hospital project potentially still on the way and a batch of schools projects, all of which were on the cards back in 2015 – Scotland is likely to be a bit more bold. Unlike Wales, it has a government that is instinctively keen to develop alternative financing approaches following its success with the NPD model, while many Welsh Labour politicians still turn their noses up at private finance.

This will no doubt be good news for the industry. Many in the market have long felt that the NPD pipeline sustained them when the PFI programme dried up down south. And while the SFT may not be everyone's favourite organisation, it is at least a well-known and clearly understood entity.

SFT chief executive Peter Reekie is keen to stress that the agency is not planning to simply take the MIM model and use it as the default option for procuring new infrastructure, though. Instead, it will develop a whole range of options to ensure the financing exists at the best value to the taxpayer to deliver the infrastructure demanded by the Scottish government.

Nonetheless, PPP (in whatever form that might take) will have a role to play in that mix – and it could even help the progress of the Welsh model.

It is understood that at least some bidders have been put off the Welsh programme in the past because of a lack of alternatives to bid for. As one source explained, it is rather difficult to persuade a company board to bid for, say, one single healthcare project, when bid costs could reach as much as £4m, when there are no other schemes on which those costs can be recovered should they not be successful.

But a pipeline of MIM or MIM-style deals could change that (although it may already be too late for the Velindre Cancer Centre project if some in the industry are to be believed, with rumours that it could end up taking a traditional procurement route).

However, one fear is that the arrival of a blockbuster pipeline in Scotland would have the opposite effect on the Welsh market, with bidders simply concentrating on a predictable, juicy programme of work in Scotland at the expense of Wales's far smaller plans.

These questions and more will be explored at Financing UK Infrastructure, this year being held in Wales and including an interview with SFT's Reekie.

But for the meantime, perhaps the most appropriate thing to say is: welcome back Scotland, you have been missed!

To find out more about the Scottish government's plans, and to hear from SFT chief executive Peter Reekie, sign up now for the Financing UK Infrastructure conference on 26-27 September. For more information, click here

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Reinventing the Scottish wheel

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As Scotland looks to Wales for PPP ideas, the industry may be starting to look up north of the border

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