30 September 2004 Edition
Jarvis leaves 650 students homeless
BY ROBBIE SMYTH
It's BEEN a week of ups and downs for Public Private Partnerships (PPP), or Private Finance Initiatives (PFI) as they call them in Britain and the Six Counties. On one hand, you had the sinking PFI specialist contractor Jarvis in trouble again, while on the other the financial services sector in Ireland and Britain were embracing PPP/PFI schemes and exploiting their potential as a new method of speculation.
Finally, this week's Comptroller and Auditor General's report has shown that schools built in Ireland using PPP finance could be 13% more expensive than if built by the state.
JARVIS MISS DEADLINE
At Jarvis, the indebted engineering and service company, it seems things can only get worse, as yet another deadline was missed and investors were stunned at revelations of share sales made and bonus schemes paid to the firm's former chairperson and chief executive, Paris Moayedi.
Jarvis' failure to finish student dorms at Lancaster University has left 650 students arriving for classes this week without accommodation. Jarvis was due to have 1,600 rooms ready but 650 are not completed. Jarvis has not commented on the missed deadline.
Jarvis is still contracted to build another 2,000 rooms in the £339 million contract. Last year, Jarvis delays meant that 114 students had to be put into hotels because rooms were not ready at the start of term.
Matt Freemann, president of the Lancaster University Students' Union, was particularly scathing of the second year of missed deadlines and said "it is now clear from our point of view that Jarvis cannot be trusted to deliver on time".
Jarvis is also the firm contracted to build and maintain the new Cork School of Music in Ireland.
POTTERS BAR PERFORMANCE BONUS
For ten years, Paris Moayedi was the driving force behind the growth of Jarvis from a struggling building company to the billion-pound PFI specialist it became. Moaydedi left Jarvis last year after receiving a £520,000 severance package.
However, it has also become clear that Moayedi sold off his shares in Jarvis in the days after the company issued profit warnings earlier this year. The profit warnings subsequently turned into a £256 million loss and broken agreements with the company's banks.
Because Moayedi's shareholding was less than 3% of the company, they were not obliged to disclose the sale to other investors, who might have been interested to know that the company's driving force was cashing in his chips, netting him another £1.77 million. In February, the shares were worth between 140p and 150p each. Now they are worth less than 40p.
The icing on the cake to this particular story is that Moayedi also received a £260,000 performance bonus in 2002, the year of the fatal Potter's Bar rail crash, and for which Jarvis has accepted the liability of victims' claims.
Any bitterness among the banking community hasn't turned them completely off PFI. In fact, one Irish-based financial group, Depfa Bank, has come up with a way of turning PFI loans into financial products.
What it has done is find a way to sell on the loans in what they call "floating rate notes". The simple explanation of what this means is that Depfa have taken 25 PFI schemes, worth £394 million, in hospitals, schools, prisons, courts, roads and rail projects, and sold them as a form of interest paying bonds.
It means Depfa can realise some of the returns from PFI projects that would have taken up to 30 years to mature. They get back much of the original loan, while the new note owners get back their original investment in the note at the end of the PFI project plus some variable level of interest along the way.
PFI finance in Britain amounts to an investment of nearly £50 billion, so there will be many more Depfa based schemes.
What is interesting about the Depfa Bank proposals is that it shows a high level of innovation, expertise and care being made in how PFI is financed, yet it is clear from the Jarvis experience that much less care and innovation is being shown in how the PFI projects themselves are put together.
19% GAP IN SCHOOL ESTIMATES
This was shown clearly this week by the Irish Auditor General's annual report, which found that five schools being built and maintained by Jarvis plc were 13% dearer than if the Department of Education had built the schools. The total cost to the state will be €283 million.
The Auditor General found that the Department of Education did not set a budget or spending limit for the project, yet believed that the project would deliver a 6% saving to the state.
So in fact, the Department of Education could be out in the calculations by nearly 20%, apart from the fact that the Jarvis record of delivery of such projects on time and up to standard is abysmal. Watch this space.