No more “poor value” PFIs for hospitals or schools…or Skynet replacement spacecraft says UK’s Chancellor of the Exchequer

by | Oct 29, 2018 | Military space, Satellites

In between announcing tax cuts and making jokey puns in his budget address (which he just might get away with if either stimulate economic growth), Philip Hammond, the UK’s Chancellor of the Exchequer (finance minister) also announced that he is banning any more Private Finance Initiative (PFI) deals from being signed given that they are now regarded as being very poor value to the tax payer. The remaining PFI agreements will be left to work themselves out – albeit that this may take decades.

In the late 1990s it was realised that the UK needed to build much needed assets and infrastructure such as schools and hospitals quickly to keep up with demand. The idea of PFI contracts was that, in a kind of public-private partnership, these would transfer a major portion the financial risk in building these assets to the private sector in return for a higher profit, and also while helpfully keeping the debt off the government books.

Introduced by John Major’s Conservative government of the 1990s, it was the subsequent Labour administrations led by Tony Blair and Gordon Brown which really made great use of PFI contracts. In effect a PFI deal meant that the asset – usually a hospital or school or even satellites – would be built and owned by the private company, which would then own them rent them back to the government authority concerned via long term lease agreements. The problem was that many of deals also included service and maintenance agreements which were very poor value (horror stories in the press included service companies being free to charge hundreds of pounds via their PFI contract just to change a light bulb) – and whose service often declined as the PFI contracts were sold on to others. These PFI deals worked out as being much more expensive than conventional financing, once their long term nature and all the costly service agreements were considered. Meanwhile draconian penalty clauses meant that the government side could not afford to break the deals and will thus be locked in to existing PFI deals for decades to come.

Skynet 5 series satellites will need replacing. Courtesy: UKSpace.org

So there will be no upfront money supplied by PFI financing for the UK military’s Skynet’s replacement communications satellites even though the original Skynet 5 PFI deal was one of the few that worked out to the benefit of the government side. These satellites were originally owned by Paradigm Secure Communications – a spin-off of Astrium which is now the satellite operating arm of Airbus DS. When the contract runs out their ownership is transferred to the UK Ministry of Defence (UK MOD).

While the Skynet 6A has been ordered as a gap-filler via conventional financing, the UK’s ministry of Defence is keen to get on with procurement of a new set of communications satellites for operation in GEO as the four remaining Skynet 5 satellites are getting long in the tooth.  And it will be up to financing from the Treasury to allow them to do so.

Comment by David Todd: About the only PFI deal that worked out was the Paradigm Skynet deal with the UK MOD  – albeit that the risk element (e.g. the cost of replacing the loss of a satellite due a launch failure or satellite anomalies) was never really tested.  Most PFI deals were rotten from the day they were created – mainly as a result of the contract wordings being heavily biased in favour of the private sector side. Many of us who warned about them at the time were just ignored. Worst of all is how the PFI and connected servicing contracts have now been sold on – at a great profit – by their original owners who are thus free of their responsibilities as they count their cash. The villains of the piece include many of the major building companies within the UK. The result of PFI will be that the UK taxpayer will have to continue to pay top dollar for declining assets for decades to come. Poor show Messrs. Major, Blair and especially Brown!

P.S. Revisionist history can rewrite reputations – both ways. Gordon Brown’s previously good reputation as being an astute Chancellor/finance minister has now completely disappeared. His overuse of poor value PFI contracts, his ruinous raid on company pension dividends, his infamous sale of the UK’s gold stocks at what was the lowest price for decades, and his lax attitude to financial regulation – partly the cause of the banking disaster of 2008 – all conspire to make his time as Chancellor look very bad indeed.  And yet, not all may be lost for him. Gordon Brown, of course, moved on to be Prime Minister, a role in which he was not rated at the time and from which he was subsequently voted out. Nevertheless, his reputation as a Prime Minister is now being rapidly reassessed. It is now accepted that during the banking crisis of 2008, he and his team partially made fast and decisive wise actions which successfully shored up the financial sector, thus preventing the entire system from collapsing into a meltdown, possibly even saving capitalism itself in the process.

In the same way, while Theresa May’s time as the current UK Prime Minister may nearly be up given the current Brexit impasse, her reputation in this role may yet be recovered over time. Mind you, recent crime statistics suggest that her previous long time as Home Secretary will not be viewed benignly.Given the rapidly rising crime rate in the UK, her treasury-pleasing policy of cutting police numbers now appears to have been a serious blunder.

About Seradata

Seradata produce the renowned SpaceTrak Launch & Satellite Database. Trusted by 100 of the world’s leading Space organisations, SpaceTrak is a fully queryable database used for market analysis, failure/risk assessment, spectrum analysis and space situational awareness (SSA).

For more information go to www.seradata.com/spacetrak

Related Articles

TAIFA-1 to be built by Endurosat for Kenya’s Sayari Labs, launched on Falcon 9 as Endurosat also tapped to build space weather cubesat for Mission Space

Bulgarian small satellite maker Endurosat has joined forces with Kenya's SayarLabs who will respectively build and operate a 3U cubesat-class Read more

China launches Long March 4C out of Jiuquan carrying Ludi Tance radar sat

China successfully launched a Long March 4C (CZ-4C) launch vehicle from the Jiuquan Satellite Launch Centre, China, at 2355 on Read more

James Webb Space Telescope (JWST) puts itself into Halo orbit around Sun-Earth L2

While it has been a painstaking operation during its four weeks since launch, engineers at NASA had previously confirmed that Read more

One Starlink launch batch does not look very healthy: one in five satellites appear to have failed

While for the most part SpaceX Starlink satellites have proven to be reliable - or at least reliable enough to Read more

ULA Atlas V launch vehicle in “Lopsided” 511 configuration flies straight to put a pair of satellite GSSAP satellite snoopers into orbit

The Boeing/Lockheed Martin owned launch provider, the United Launch Alliance (ULA) which mainly specialises in US military launches, successfully launched Read more

SpaceX launches second Starlink mission of the year, 13 days after the first

SpaceX successfully launched a Falcon 9 rocket carrying 49 Starlink satellites from Kennedy Space Centre, Florida, USA. The flight lifted-off Read more

SpaceX launches first planned Transporter rideshare mission of 2022 carrying over 100 satellites

The SpaceX Transporter-3 rideshare mission launched from Cape Canaveral, Florida, at 1525 GMT, 13 January carrying over 100 satellites. The Read more

ESA confirms that Sentinel 1B’s radar is still knocked out by power issue

Sentinel-1B, a key Synthetic Aperture Radar (SAR) satellite of the ESA/EU Copernicus Earth observation and monitoring programme, has failed in Read more

Categories

Archives

Tags