pounds 1.5bn deals help revive PFI

THE PRIVATE Finance Initiative (PFI) - the Government's scheme to encourage private firms to invest in public projects - received a twin boost yesterday with the award of two contracts totalling more than pounds 1.5bn.

An alliance of Seeboard, the regional electricity group, BICC, the cable giant, and the Swedish engineer ABB won a pounds 1bn contract to refurbish and maintain London Underground's power distribution network. In a separate deal, a consortium led by Alfred McAlpine, the construction group, won a 35-year contract, worth pounds 520m, to build and operate a new hospital in Wythenshawe, south Manchester.

The London Underground contract involves the construction of a high-voltage cable network covering around 400km of tracks, to distribute electricity to every Tube station in the capital. At present, the bulk of the Underground's electricity is generated by two power stations. But within two years London Underground will be free to buy electricity directly from suppliers and distribute it through the new network.

Under the terms of the Manchester deal, the McAlpine-led consortium, which includes project manager WS Atkins, will build and maintain a 320- bed acute care unit and a 77-bed mental unit. Although the total cost of the buildings, expected to open in 2001, is only pounds 66m, the contractors are set to gain pounds 520m in fees for maintaining the facilities for 35 years

Under the PFI, private firms undertake to provide part of the capital and to take on some of the risks associated with building and operating public projects in return for a stream of fees over a number of years.

The Manchester deal is only the seventh PFI hospital contract to be signed since the initiative was launched by the Tories in the late 1980s as a way of reducing public spending on infrastructure projects.

The scheme has proved a success in roadbuilding. But in the health sector, the initiative has been dogged by contractual disputes between private firms and NHS authorities. The Labour government has pledged to revive the PFI in the health sector and has promised to begin construction on 15 new hospitals by the end of the year.