Business View: If you want more hospitals, you've got to live with PFI

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The Independent Online

There has been plenty of hell and fury over the eye-watering profits that construction companies are making by selling their stakes in Private Finance Initiative projects. This should come as no surprise as many people in this country have grave reservations over private companies running public services. But if you're one of them, then put your ideological views to one side for a moment, because there is a pragmatic reason why these profits should be welcomed.

There has been plenty of hell and fury over the eye-watering profits that construction companies are making by selling their stakes in Private Finance Initiative projects. This should come as no surprise as many people in this country have grave reservations over private companies running public services. But if you're one of them, then put your ideological views to one side for a moment, because there is a pragmatic reason why these profits should be welcomed.

While Tony Blair, or for that matter Gordon Brown, is running the country, PFI is here to stay. In fact, the Government has cranked up the PFI machine so high that there are fears there aren't enough companies to bid on some projects.

So allowing the private sector to make decent returns when it sells on its investments will oil the wheels of the PFI. It will give the companies fresh capital to bid for new hospitals, surgeries and schools.

PFI is all about transferring risk from the public to the private sector. On most PFI schemes the risk is loaded in the first few years of the project: bidding, construction and establishing new services. Get it wrong and you only have to look at the imploding Jarvis to see the consequences. But once a company has overcome these risks, the value of its PFI investment must increase.

So, yes, we should scrutinise the Government's use of the PFI. But we should not criticise companies for making money out of it; if they didn't, then PFI wouldn't work.

Bonds on the brink

Corporate bonds enjoy a middle-of-the-road sort of image: not as racy as equities, but more exciting than sticking money in the bank.

But a hearing at London's Court of Appeal tomorrow could change that. Fidelity, Société Générale, Lehman Brothers and New Star Asset Management, which hold convertible bonds in MyTravel, will attempt to overturn a November High Court ruling that bondholders had no economic interest in the struggling tour operator. The implications of this are immense. Some in the City believe it may substantially increase the risk profile of bonds, putting them on a par with shares. After all, if the ruling had been made a couple of years ago, then bondholders in British Energy, Marconi and NTL would have had no say in how the companies were rebuilt.

Of course, Fidelity et al aren't going to court for altruistic reasons; they want a bigger slice of the restructured MyTravel. But in challenging the judgment they will attempt to throw out a ruling that had set a dangerous precedent.

No cheap returns

The competition to decide who will operate the profitable London-to-Edinburgh rail franchise reached a critical stage on Tuesday, when the four bidders delivered their bids to the Strategic Rail Authority.

Chris Garnett, the chief executive of GNER, the current East Coast Mainline operator, arrived by taxi to deliver his wedge of bid documents and duly bumped into the Virgin Rail team, which had hired a van to transport their own felled forest. Garnett put the finishing touches to his bid at 6am on Tuesday morning but he still managed a bit of bravado, quipping that Virgin should deposit its bid in a skip around the corner from the SRA's Westminster office. Also bidding are First Group and the Danish state railways.

Officials at the SRA must now decide which bid offers the best balance of service and value for money. The service side is all about punctuality, clean trains and toilets that flush properly. What about value for money? GNER pays the Treasury £19m a year to run the franchise. So bidders are expected to offer more dosh to increase their chances.

But what about value for money to the passengers? If you jump on the 8am train from London to Edinburgh tomorrow, the four and a half hour journey will cost you a shade under a hundred quid - cheaper than flying, but still fairly steep.

So will the bidders also win brownie points by pledging to reduce fares? No. As one train company boss told me last week: "There's no point. It won't win us the bid as it's not part of the assessment."

clayton.hirst@independent.co.uk

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