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Private cash for public buildings under scrutiny as Australian bank makes healthy profits from sick children’s hospital

Artist's impression of Edinburgh's Sick Children's Hospital
Artist's impression of Edinburgh's Sick Children's Hospital

An Australian investment bank is poised to make millions of pounds over the next 25 years from the new Edinburgh Sick Children’s Hospital, we can reveal.

The £150 million building, which won’t open for months after last-minute safety warnings, is owned by a consortium that will be paid £416m for building and running it.

NHS Lothian awarded the ­contract to build the hospital in 2014 to the IHS Lothian consortium, with Scottish Government documents revealing it has a 100% equity stake in the project “with ultimate ownership being Macquarie Capital Group Limited”.

As well as the Sydney-based investment bank, the consortium also includes another Australian company, builder Brookfield Multiplex, and France- based facilities management firm Bouygues E&S.

Macquarie chief executive Shemara Wikramanayake received an annual salary of £10m, while six other executives received more than £5m.

Two years ago, Macquarie bought the Edinburgh-based Green Investment Bank from the UK Government in a £2.3bn deal.

The Scottish Futures Trust (SFT), the quango set up to curb excessive profits made by private companies building public projects, said exactly how much the Macquarie would make from the hospital was commercially sensitive.

But Allyson Pollock, director of the Institute of Health and Society at Newcastle University and an expert on PFI, said: “Their shareholders aren’t in it because they love the Scottish people.

“Their shareholders are in it to make money. This is not a good way to build public projects.”

Jim Cuthbert, a statistician and former civil servant, said: “There is a fundamental problem about all of the different types of project undertaken through the Scottish Futures Trust.

“Namely, the difficulty of answering basic questions like what is the actual cost to the public sector.

“Limited evidence available suggests there are grounds to be concerned about the cost of SFT schemes, and about the potential for excess private profit.

“The implication is the SFT’s programmes should be getting a degree of monitoring and scrutiny which they are not currently receiving.”

The Edinburgh hospital has been built under a scheme introduced after the scandal over private firms profiting from school, hospital and motorway projects. But 51 SFT schemes with a capital value of £2.8bn will cost the taxpayer £8.4 billion under 25 or 30-year contracts. Other projects include the £469m Aberdeen city bypass, which will cost £1.4bn by the deal’s end. M8, M73 and M74 improvements will cost £310m but the final bill will be £1.5bn at the end of a 30-year contract.

Professor Pollock said: “The main claim for using private finance was it was more efficient and gave better value for money, but the value-for-money tests were not grounded reality and were just economic sorcery.But Westminster is still wedded to that policy and, because of austerity and capital squeeze, it has put Scotland in an impossible position.

“It has been shown time and time again to be a bad deal for the taxpayer.”

When approached for comment, Macquarie referred us to IHS Lothian. It said: “The project itself uses the SFT’s non-profit distributing financing model which caps potential returns to equity holders. This ensures better value for money on complicated projects like this.

“The unitary charge includes the costs of the staff required to maintain the building as well as the costs of repairs to keep the hospital in excellent condition for 24 years.”

The SFT said: “The Royal Hospital for Children and Young People delivery company will not make any profit as the project is non-profit distributing, but investors will make a commercial return on their lending to the project and, as a positive step to aid transparency, SFT publishes information on these returns two years after the completion of construction when the commercial sensitivity has reduced.”

The Scottish Government said: “Funding of public infrastructure has vastly improved under this government compared to the excessively costly PFI contracts previously used – which have proved to be an extremely bad deal for the taxpayer.”