Leeds City Council has confirmed that the city’s troubled PFI housing project has been further delayed. On-site work to build 388 new homes and refurbish over 1,200 in Little London, Beeston Hill and Holbeck will not now start until November at the earliest.
A report going to a meeting next week of the council’s executive says that one of the banks funding the project under new arrangements disclosed in March - Norddeutsche Landesbank Girozentrale (Nord) Bank – has since pulled out.
If the executive gives its approval, the consequent funding shortfall is now going to be met by the Council itself, from its Housing Revenue Account (HRA) reserves.
“The proposed changes to the funding requirements will involve the City Council re-profiling the affordability contributions it makes over the first 5 years of the contract in line with the anticipated construction programme,” the report says.
“This can be achieved without impacting on other HRA programme priorities through a combination of reserves not earmarked for other schemes and the ongoing savings anticipated by the consequential reduction in the unitary charge for the project,” it adds.
Signing by the end of July
It is now hoped that the long-delayed contract signing will take place by the end of this month, or as soon as possible afterwards, “subject to government and executive board approval, and following funder credit committee approval”.
It’s clear from the report that there is some urgency for the executive to agree to the new arrangements.
“The updated proposals are … predicated on the basis that a contract can be signed at the end of July or as soon as possible after that but before the next scheduled meeting of executive (in September), as the affordability position cannot be guaranteed to remain unchanged beyond that,” the report notes.
“It is intended that … works will commence from early November 2012 (after a 3 month contract mobilisation period),” it adds.
The alternative – scrapping the PFI deal – appears to be unthinkable.
“If the council was unable to proceed with the project under the PFI funding route, it would need to identify around £140 million from existing resources to bring the existing 1,245 council homes up to decency standard and to construct the 388 new homes,” the report says.
“The PFI approach also ensures funding is in place to meet the repairs and maintenance and lifecycle investment costs for the 20 year contract period, which would otherwise need to be identified from other resources,” it notes.
Cost details being kept secret
What effect these latest delays have had on the cost of the 20-year PFI project is unclear. The council admitted as long ago as January that monthly costs were £500,000 a month higher than originally anticipated. In March the costs had gone up again (inflation, greater consortium costs, new funding arrangements) – but no-one was saying by how much.
And now the detail of the financial impact of these latest changes – to a project that has been six years in the gestation – is being kept secret in an “exempt” appendix to the report.
All of this before the contract is actually signed.
Risk around further delay
Four months ago the council was saying that the major risk to the project came from a possible increase in interest rates. Now it’s saying that those should be mitigated by “the improved financial position for the project” and the buffer that was built in to the costs to cope with such an eventuality.
“The key risk now is around programme delay which would have a greater bearing on project and funding costs,” it adds.
According to data from HM Treasury, Leeds City Council has taken on PFI debts of £2.2bn for 12 projects since the Private Finance Initiative began. Its repayments will peak at £95.6m a year in 2030.
That’s without including the costs of this project and the controversial PFI incinerator that’s scheduled to be signed off and built at Cross Green in the east of the city some time soon.