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Mr. David Ruffley (Bury St. Edmunds): I wish to draw particular attention to amendments Nos. 8 and 9, at whose heart is the critical distinction between upstream and downstream activities.
Upstream activities are defined in a later amendment as a set of activities that provide for support and assistance to the public sector prior to the financial close. Downstream activities are defined elsewhere as involvement in the project's management and equity investment after that close. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, it is the inclusion in the Bill of a role in downstream activity for PUK that most troubles Opposition Members, City practitioners and commentators.
My hon. Friend correctly observed that with regard to downstream activity, a body advises the public sector on how to get the best deal while being able to take an equity stake by way of remuneration for its involvement in the deal. That equity stake will involve it in trying to get the best deal for itself as a shareholder. That inherent structural conflict is built into these provisions.
PUK will seek to develop a revenue stream to finance its activities, but we are being told that that will not and should not crowd out private sector activity. That is clearly another conflict.
The Minister will probably tell us a great deal about Ministers' consultation with the private sector before drafting the Bill and how the Government listened to Opposition views in Committee. They may have listened and they may have consulted, but they have not come to the proper conclusions. It is to some of the outstanding points that have not been tackled that I would like to turn my attention.
I do not think that anyone has a problem with upstream activities. They are typically undertaken by the Treasury taskforce--and a very good job it did in the main.
Mr. Letwin:
Does my hon. Friend agree that if the upstream activities constitute the main burden of the Government's case, clause 16(1)(a) should have been captured by the £400 million limit? It cannot conceivably be the case that the upstream activities would require to have more than £400 million spent on them all told, including the initial investment.
Mr. Ruffley:
Given my hon. Friend's premise, he is of course right, but he misunderstands me if he believes that I think that the burden of the Government's case is the importance that they attach to upstream activities. The importance that they attach to downstream activities is my concern. However, given his premise, he is right in making that logical and typically powerful point.
Mr. Letwin:
Following his own logic, would my hon. Friend then agree that the fact that clause 16(1)(a) has been omitted from the £400 million limit is virtually proof that the Government intend the body to have a great deal to do on the downstream side?
Mr. Ruffley:
My hon. Friend has it. That is exactly the point of my remarks further downstream, if I may make such a pun. It is at the forefront of Conservative Members' concerns.
Let us remember what upstream activity is and why it is important. To demonstrate what a reasonable chap I am, I will gladly pray in aid the view of the Chief Secretary to the Treasury. In a speech to the Institute for Public Policy Research on 20 September 1999, he suggested that the importance of PUK was in helping to
PUK will also encourage the public sector not to impose unnecessary risks on the private sector. That is another of the Government's stated aims. We have no problems with that. It is also implicit in the logic of the role carved out for PUK's upstream activity that it should
promote greater standardisation of contracts. That is most important, as is the fact that PUK should try to streamline the bidding process so as to encourage greater deal flow.
However, when we try to find out what the measure says about upstream activity--the subject of amendment No. 8--we seek in vain. We cannot discover ways in which that pre-closing and troubleshooting advice could be delivered. We have what is technically a private sector company, which will employ staff who represent a better skill base; that is what we are asked to believe. The company will be better than the embodied form of the Treasury taskforce.
However, concerns remain as to the kind of staff who will be attracted to PUK and retained. The pool of experienced PFI professionals is relatively small and the demand for their services in the private sector is high. Will the Minister tell us what is being done to recruit and retain staff who will deliver high-quality, upstream activity advice?
As one considers the significance of upstream activity, another question automatically leaps out. What relationship will PUK have with other Departments? Those people who have wandered the corridors of Whitehall in a previous life will understand that some Departments are not awfully good at interacting with non-governmental bodies. Will the Minister tell us what mechanisms--if any--the Government have put in place to incentivise Departments to work efficiently, promptly and in a co-operative spirit with PUK when it has been set up?
I cannot close my remarks on the importance of upstream activity--the subject of amendment No. 8--without adverting to the points in other amendments about downstream activity to which my hon. Friend the Member for West Dorset (Mr. Letwin) referred a few moments ago. The Opposition regard downstream activity as dangerous. My hon. Friend the Member for West Worcestershire (Sir M. Spicer) alighted on that fact.
Let us consider briefly why the involvement of PUK in downstream activity--the management of investment and the participation in equity investment during a PFI or public-private partnership deal--could be problematic. What conflicts of interest might arise if PUK indulged in the downstream activity of which we disapprove?
PUK will be advising public sector clients on how to achieve the best commercial deal. However, at the same time, it will, in some cases, have an equity stake in the deal. The commercial interests in securing the best return on that stake would be diametrically opposed to the interests of the public sector client to whom PUK was giving the advice in the first place. The competitive bidding process could be compromised if PUK participated in choosing a preferred bidder in which it had a future investment interest. In other words, PUK could recommended a bidder to be selected if it offered the most favourable participation to PUK.
Mr. Charles Wardle (Bexhill and Battle):
Is not everything that my hon. Friend says in support of his amendments and about the pitfalls likely to be found in downstream activities a powerful argument in support of amendment No. 16, which was tabled by my right
Mr. Ruffley:
I concur with my hon. Friend's assessment that our right hon. Friend, who is Chairman of the Public Accounts Committee, has alighted on an important point. That is why he tabled an amendment to act as an important set of belt and braces if we cannot get rid of downstream activity. I fear that, despite the power of our arguments, we may not succeed in doing that today. However, that amendment would ensure that there would be proper accounting of the PUK's spending and scrutiny by the National Audit Office.
Mr. Letwin:
Even if we do not succeed today, does my hon. Friend not agree that it is almost certain that, if the Government continue to resist such amendments, the other place will ensure that they are not allowed to continue with their proposals for downstream activities?
Mr. Ruffley:
I stand corrected by my hon. Friend. Perhaps, I am too much of a pessimist. I heard what he said, and I now share his optimism that the Government will listen to the objections that we are making in a reasoned and sensible spirit about the risks posed by the downstream activity envisaged in the Government's new clause.
I return to the list of potential conflicts of interest. Confidential information that PUK gains as a shareholder or lender in one transaction could be used against other private sector bidders in later transactions.
Mr. Letwin:
I am sorry to interrupt my hon. Friend again, but I have just caught up with his lightning intellect and realised what he was saying. Does he really mean what he said? Is it not likely that the Government will not so much listen as hear an enormous shout from the other place? Eventually, they will be compelled to listen.
Mr. Ruffley:
I hope that the Government will be compelled to listen to the points that we have made, and that the other place will no doubt make, about the dangers of downstream activity. My hon. Friend is right in that regard.
We have a further concern about downstream activity. If PUK is a participant in a project company either as a shareholder or a lender and needs to make returns and reduce investment risk, how will it negotiate effectively during the life of a deal against the public sector tariff payer that is its co-sponsor if that deal has to be renegotiated? For example, it might need to be re-financed and, in those circumstances, there will be a clear conflict of interest.
get more PFI deals done better and quickly.
We would all like that. It is what the Treasury taskforce was dedicated to ensuring, so there is no problem thus far.
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