Supplementary memorandum by Philip Turville,
Managing Director, Head of Transportation, Europe, Royal Bank
of Canada, Capital Markets[1]
As requested by the Committee at my evidence
hearing on 8 December 2009, I have the following observations
on the initial written evidence supplied by Dr Edwards[2]
(using his paragraph numbers):
2. The private sector cost of capital quoted
seems high in the current market. Based on my experience of raising
finance for PFI projects, a private sector WACC (post-tax, nominal)
in the range of 5.5%-5.8% would be more typical based on the current
20 year swap rates and a typical 90/10 gearing structure. This
compares to the current 20 year Gilt rate of 4.39%.
3. The 92% cost differential again seems
high. Using the private sector WACC range indicated above, the
differential in the pure cost of finance would be substantially
lower.
8. (second paragraph). The set-up costs
incurred by the private sector are included in value for money
comparisons in my experience. Such costs will be funded by the
private sector and therefore incorporated in the unitary charge
paid by the public sector which is subject to the value for money
analysis.
9. Without commenting on the specific figures,
it is likely that the £465 million NPV quoted incorporates
a number of costs other than financing costs associated with construction.
For example, the "rent" will also typically cover maintenance
costs for the facility (for the full contract term), insurance
and management.
Please note that we have only commented areas
above where we feel qualified to comment and where it would not
breach client confidentiality. This does not mean that RBC Capital
Markets in any way agrees with or endorses the remaining elements
of Dr Edwards' evidence.
1 This further evidence was requested by Lord MacGregor
at the meeting on 8 December 2009. Back
2
Dr Chris Edwards' written evidence is printed in this volume at
p 130 and p 151. Back
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