pounds 200m PFI road deal

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The Independent Online
A CONSORTIUM involving construction firms AMEC and Alfred McAlpine has won a pounds 200m contract to build two new road schemes in the second biggest award yet made under the government's much-maligned private finance initiative (PFI).

The scheme will be part-funded by a pounds 165m, 25-year bond, which has been sold to institutions including the Prudential and Legal & General.

The new projects - upgrading the A1(M) motorway from Alconbury to Peterborough in Cambridgeshire and the A417/A419 Swindon and Gloucester bypasses - are the second and third under the Department of Transport's Design, Build, Finance and Operate (DBFO) version of PFI.

Under this, the winning Road Management Group consortium will be paid a "shadow toll" by the DoT based on traffic usage, once the roads are complete. RMG also includes Dragodos, a major Spanish toll road operator, and Brown & Root of the US.

"This is the first time that a private finance initiative has been funded through the capital markets, but it clearly marks the way forward," said John Watts, minister for railways and roads. "This indicates, certainly in the field of transport, that PFI is working."

It has hardly been plain sailing, however, and during the week builder John Laing became the latest to criticise complexities of the PFI. The biggest award so far, the pounds 3bn Channel Tunnel link last month, was also dubbed "the great state giveaway" by Labour after the DoT added pounds 6bn in sweeteners.

PFI awards elsewhere, notably in health, have been subject to severe delays.

The next DBFO scheme to be awarded will be the pounds 200m M1/A1 motorway link at Leeds. When all three tranches of contracts are awarded, 37 roads will be built at a cost of pounds 1bn despite severe roadbuilding cuts in the Government's latest spending round.

RMG beat the Connect consortium involving Balfour Beatty and Germany's Philip Holzmann for the A1 project and National Road Operators, which takes in Costain and P&O's Bovis, for the A417/A419.

One of the losers said: "Like other people we find the PFI process a lengthy and expensive one. We have no great interest, but it's not a complete waste of time otherwise we wouldn't bid."

Road operating responsibility will be handed over at the start of April and the structure of DBFO means the winners have an incentive to complete construction as soon as possible.

Over the 30-year life of the shadow toll contract, maintenance costs borne by RMG will take the total commitment to over pounds 285m. The DoT would not give details of tolls per vehicle and said building efficiencies meant PFI did not necessarily cost the taxpayer more.

Merchant bank Hambros is advising the Government on the DBFO schemes.