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[Thread] Yesterday I appeared on Politics Wales on the BBC to discuss concerns I’ve been raising about the fact that the cost for dualling the final part of the A465 has spiralled to over £1 billion pounds. You can watch the item here: https://fb.watch/2dZJA3q4MK/
When I originally raised this issue in FMQs last week, the First Minister claimed I’d got my facts wrong & told me to do my homework. So I did, and I will share what I found out in this thread.
In 2017, the Welsh Government (WG) estimated the total cost of the project as being £428m. This included £308.5m for construction with the rest being added costs, including project risk.
It since became clear that WG decided to use its Mutual Investment Model (MIM) to finance the project. This is their version of PFI. They claim it’s not the same, but it is. The Senedd’s Finance Committee considered the issue and concluded it’s PFI with some added benefits.
Through the use of this model, private companies will pay the capital cost of construction. WG will then pay them back over the period of 30 years. These annual payments will include profit for the private sector, the interest on their loan & payment for maintenance of the road.
WG will end up paying over £1.2bn for dualling the 11-miles of road using MIM. Their original estimate for the total cost was £428m. The cost has tripled. The £1.2bn is mainly made up of the extortionate annual service payment of £38m for 30 years & does not include VAT.
The benefit-cost ratio (BCR) for the project was 1.05 (1.20 with added benefits) back in 2017 when it was only supposed to cost £428m. WG claims it’s still positive: 1:01 (1.25:1). How this can be the case when the cost has tripled, I do not know.
Not only does the use of MIM tie future governments down to expensive long-term repayments, it also generally increases the cost of the project through an increase in construction cost.
The construction costs have risen significantly since 2017 when it was estimated at £308.5m. WG admits that part of the reason is so that the private sector receives a higher profit. BTW I find it strange that the cost increased by £40m after the contract was announced on 10/11
I understand that Labour MSs have been claiming that raising concerns about this use of PFI means I oppose investment in the Valleys. This is at best disingenuous: they know it isn’t true as they were present in the Senedd when I said I wanted the money spent, but spent better.
Given the massive increase in cost since the project was first mooted, WG should think again about whether it offers value for money & whether there’s a cheaper way of delivering the benefits. Safety on the road must be improved, but could it be done quicker & cheaper?
There is an interesting question to consider about why WG decided to go down the MIM route & what alternatives exist for Wales for funding large-scale infrastructure projects. I’ll have more to say about this soon. In the meantime, I hope sharing this information proves useful.
