Fat cats take pounds 70m from the taxpayer

Property company privatised three years ago is resold at huge profit

A property company sold by the Government for pounds 11.4m only three years ago has been re-sold for a profit of more than pounds 70m. Half the profit will be shared by three people, in a deal which revives Labour accusations that "fat cats" are making a killing at the expense of the taxpayer.

The company, which has traded profitably since it was bought by a consortium in 1993, has been re-sold for pounds 84.6m.

Dr Wilem Frischmann and Sudhu Prabhu, whose consulting company led the consortium, have made pounds 18m and pounds 12m respectively. Another pounds 7m goes to Trevor Osborne, a property developer who helped to broker the deal. The rest of the profit goes to Amec, the building company which was their consortium partner.

Derek Foster, Labour's civil service spokesman, condemned the re-sale of a part of the Property Services Agency (PSA) as evidence that the taxpayer had been "ripped off". The Independent yesterday revealed that the Government's net worth has declined from pounds 20bn in the black to pounds 152bn in the red under the Conservatives.

This deal follows news of the profit of pounds 40m realised a month ago by three directors of Porterbrook rail leasing company, seven months after it was privatised, when the company was bought by Stagecoach.

Dr Frischmann was born in Hungary and trained as a structural engineer to pursue a life-long interest in tall buildings. As a young man he worked on Centre Point and the NatWest Tower, and, more recently, on Canary Wharf. He, his son, Richard, and Mr Prabhu own the civil engineering consultants Pell Frischmann, which led the consortium that bought two divisions of the PSA.

"At first glance, it seems we have become fat cats," he told The Independent. "But we took risks. The Government had good value. We have ensured permanency of employment for about 1,800 civil servants."

The Government guaranteed the cost of the first 1,000 redundancies, but the consortium still faced a potential pounds 50m bill for lay-offs which was not underwritten by the Government. None of this was needed, and restructuring costs were met out of profits. The consortium had not even paid the whole purchase price - it was given terms over four years.

Dr Frischmann said that he would reinvest the profit in Private Finance Initiative projects: "I'm not going to buy a yacht or something."

The PSA, which ran Whitehall buildings and managed government building projects, was sold in 1993 by John Redwood, a leading advocate of privatisation and then a junior environment minister. The agency had been dogged by allegations of fraud, and a breakdown in financial systems.

The PSA divisions bought by Pell Frischmann included the part which managed Buckingham Palace, the Houses of Parliament and the Government's Whitehall buildings. The National Audit Office criticised the sale earlier this year, because the Government made an "unusual" pounds 14m unsecured loan to cover cash-flow problems in loss-making parts of the business.

The company, now Building and Property Management Services (BPMS), manages buildings mostly for the Ministry of Defence, having been guaranteed pounds 400m worth of government work over five years. A few months ago, it cleaned the face of Big Ben

A week ago, BPMS was bought by CVC Capital Partners, a venture capital fund, on behalf of its own management.

Both Pell Frischmann and BPMS are now bidding for an even bigger prize: the contract to manage all the Department of Social Security's property. And Pell Frischmann's partner Mr Osborne, the boss of Speyhawk property group which crashed with debts of pounds 300m three years ago, has long been interested in bidding for armed forces homes, worth pounds 2bn.

For Labour, Mr Foster said: "With the sale of the DSS estate and MoD homes on the agenda, the Tories clearly cannot be trusted. This is asset stripping on a grand scale."