Supplementary memorandum submitted by
HM Treasury in response to additional questions from the Committee
Q1: Assuming no inflation,
what would be the total amount of cash paid by the Treasury to
Exchequer Partnership over the lifetime of the Treasury Building
The Unitary Payment (UP) is set at £14.037
million per annum in March 1999 prices, to be indexed annually
by the RPI. Assuming no inflation, therefore, the Treasury would
pay £491.3 million over the 35 year contract term.
Q2: What assumptions have been made about inflation
in the Treasury Building PFI deal?
The Base case assumption was a constant 2.5
per cent annual increase in the RPI All Items index.
Q3: Using these inflation assumptions, what would
be the total amount of cash paid by the Treasury to Exchequer
Partnership over the lifetime of the Treasury Building PFI deal?
£838.154 million. This equates to £169.3
million in Net Present Cost terms, discounted at 6 per cent in
real terms and assuming 2.5 per cent inflation.
Q4: What would be the total amount of case paid
by the Treasury to Exchequer Partnership overe the lifetime of
the Treasury Building PFI deal, assuming a constant inflation
rate of: (i) 2 per cent, (ii) 2.25 per cent, (iii) 2.5 per cent,
(iv) 2.75 per cent, (v) 3 per cent, (vi) 4 per cent, (vii) 5 per
These calculations have no bearing on the value
for money assessment since the project appraisal is conducted
in real terms and the real terms value of each calculation is
the same as that given in the answer to Q3.
Q5: Prior to the PFI deal, how much has the Treasury
paid in annual rent (notionally or otherwise) for the Treasury
See answer to Q7 below.
Q6: When the PFI deal ends, how much at current
prices will the Treasury have to pay in annual rent?
At the end of the PFI deal in 2037 ownership
of the building reverts to the Treasury. We then have a choice
whether to negotiate a new deal with Exchequer Partnership, or
another supplier, or to take responsibility for running the building
ourselves once again.
Q7: What were the total annual operating costs
for the Treasury Building in each of the four years prior to the
The Treasury Building is a Crown freehold so
has not been subject to conventional rents. For the four years
prior to the PFI deal a capital charge (an intra-Government transfer
payment) has been payable on the Treasury Building. The Treasury
has another buildingAllington Towers (AT) in Victoria Streetwhich
is a leasehold building so subject to rental payments to a landlord.
The intention is to surrender the Allington Towers lease when
the staff there have moved into the refurbished Treasury Building
this summer. While the refurbishment of the west end of the Treasury
Building is going ahead, some two thirds of our staff remain in
the east end of the building while the remaining third are housed
at Allington Towers. The total costs of running the two buildings
are set out in the table below.
|Items including in Unitary Payment:||
|Items not included in the Unitary Payment:
|Rates, Utilities' costs, copying, furniture and fittings
Q8: What are the total refurbishment costs of the Treasury Building? (please provide a breakdown and a total)
As at financial close (5 May 2000), the total prjected costs
to the start of operations were:
|Net VAT paid/received||0.115
|Senior debt service reserve||4.392
|Change in law reserve||2.419
|Interest and fees:||
| Mezzanine Debt
| Bond (net of interest received)
Q9: What are the total operating costs for the refurbished Treasury Building? (please provide a breakdown and a total)
The annual service costs payable to EP form part of the single
Unitary Payment payable by HMT. These costs are expressed in March
1999 prices and are subject to indexation:
|Total Unitary Payment||
Q10: What was the total capital sum involved in the Treasury Building PFI deal? (Please provide a breakdown into equity and the different layers of debt)
|Sources of Funding||£m
|Shareholder Loan stock||6.425
The equity comprises the ordinary shares and the shareholder
loan stock, a total of £6.925 million, of 4.9 per cent of
the total funding.
Q11: What were the gross proceeds from the Exchequer Partnership
Q12: What were the net proceeds from the Exchequer Partnership
Q13: What were the total fees paid to banks and to professional
advisers in relation to the Treasury Building PFI deal? (please
provide a breakdown showing each amount and the payers (ie HM
Treasury, Exchequer Partnership etc) and the payeesand
also an overall total)
(i) Fees paid by EP up to and including financial
close (May 2000), as shown in the financial model, were:
|SG||Financial advice to EP
|Chesterton||Property/letting advice to EP
|PwC||Tax and accounting advice to EP
|Ashurst Morris Crisp||Legal Advice to EP
|C E Heath||Insurance advice to EP
|Marsh Bankrisk||Insurance due diligence for funders
|Failthfull & Gould||Technical due diligence for funders
|Allen & Overy||Legal due diligence for funders
|Rating Agencies||Bond rating costs
|UBS Warburg||Bond arrangement fee
|Ambac||Initial credit enhancement premium
|Ambac||Mezzanine arrangement fee
(ii) Fees paid by HMT up to and including financial close
|GTMS||Project Management and technical advice
|Berwin Leighton||Legal Advice
|Dresdner Kleinwort Benson||Financial Advice
|Cecil Denny Highton||Advice on Accommodation requirements
|CB Hillier Parker||Specialist property-related advice
|Roger Preston & Partners||Mechanical and Electrical Engineering Advice
|Willis Corroon||Insurance Advice
Q14: Under the terms of the Treasury Building PFI deal who owns the freehold Treasury Building?
The Building remains a Crown freehold throughout the term
of the deal. Exchequer Partnership plc will be granted a headlease
for the whole site on completion of the refurbishment of the Treasury
accommodation at the west end in the summer. They will then grant
the Treasury a sub-lease for our accommodation for the 35 year
operating period. Once the eastern end is refurbished, Exchequer
Partnership will grant similar sub-leases to the tenants there.
Q15: Other things equal, what would have been the total net
present cost of the annual unitary payments by the Treasury to
Exchequer Partnership over the lifetime of the Treasury Building
PFI deal if the discount rate had been: (i) 3.75 per cent, (ii)
4 per cent, (iii) 4.25 per cent, (iv) 4.50 per cent, (v) 4.75
per cent, (vi) 5 per cent?
Under current Treasury guidance to Departments on the carrying
out of investment appraisals (the "Green Book") the
discount rate to be used is 6 per cent in real terms. Were the
guidance to be changed in the future, other parts of the methodology
might also vary. So simply changing one variable, in this case
the discount rate, is not valid.
Q16: Other things equal, what would have been the total amount
of cash paid by the Treasury to Exchequer Partnership over the
lifetime of the Treasury Building PFI deal if the discount rate
had been: (i) 3.50 per cent, (ii) 3.75 per cent, (iii) 4 per cent,
(iv) 4.25 per cent, (v) 4.50 per cent, (vi) 4.75 per cent, (vii)
5 per cent?
See answer to Q15 above.
Q17: At the time of issuing the bond, what would have been
the total extra cash paid by the Treasury to Exchequer Partnership
over the lifetime of the Treasury Building PFI deal for every
change of 0.1 per cent in the bond spread?
The total additional payment over the lifetime of the project
would have been £6.568 million per 0.1 per cent increase
in the bond spread. The NPC impact of 0.1 per cent increase is
£1.329 million (discounted at 6 per cent real), and the annual
increase in the Unitary Payment would have been £110,000
as at 31 March 1999.
Q18: By how much would the bond spread have had to widen before
the project had become unviable?
The contract with EP provided for a cap of £14.2 million
on the Unitary Payment (ie 13.981 at the time the contract was
signed in August 1999) if funding was subsequently secured through
the bond route. If the cap had been exceeded, then it would have
been for the Treasury to decide whether a new, higher figure would
still have provided good VFM.