GIBRALTAR’S HALF A BILLION DEBT AND HIDDEN PFIs

Private Finance Initiatives known to politicians and those in the financial sector as PFIs are the buzz word of the moment. We have the Australians to thank for the concept but they have also been widely used by the British and Canadian governments as well as in Europe. Whilst the initial buzz was positive it has now been become annoying as a demented wasp. This has led to the House of Commons Treasury Select Committee calling on the Chancellor of the Exchequer George Osborne to wean his ministry off “the drug” of the PFI.

A PFI is complicated but in essence it is the combining of a mortgage to a full repairing lease. The government decides what project it wants, hospitals have been a popular use of this method of funds, the private sector then finances, builds and operates it for a set period, normally up to 30 years that includes full maintenance. At the end of the contract period the project is handed back to the government.

The PFI is attractive to governments because it transfers risks, they don’t have to raise the capital now nor does it have to appear on the government’s books so is not included in the debt total. In the UK it is estimated that since 1992 over 70 billion pounds of capital has been raised for hospitals, schools, prisons, new roads and defence projects. However there is an ultimate bill to pay including the running and maintenance costs and by 2050 the current PFIs will have cost British taxpayers, including those of yet unborn, 240 billion pounds.

Curiously when in opposition George Osborne described the Labour Government’s use of PFIs as “totally discredited” adding it was a flawed model which “must be replaced”. However the Treasury under Osborne has continued to use them. In the committee’s opinion using a PFI deal for a new infrastructure project could end up costing up to 1.7 times as much as paying for it directly out of the public purse.

It was the Tory Chancellor Norman Lamont who first used the PFI in 1992 but it was Gordon Brown as chancellor who perfected the art. The private sector agreed to build and run schools, hospitals and other infrastructure projects, for usually 30 years, in exchange for a steady flow of payments from the public purse.

Andrew Tyrie, the Conservative Chairman of the Treasury Select Committee summed the use of PFIs up as instead of transferring risk to the private sector and cutting costs for the taxpayer, PFI had fooled the public and Whitehall officials into thinking they could get shiny new public services “on the never-never”.

He continued: "PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that. It’s like a drug. We can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab. We must first acknowledge we’ve got a problem. This will be tough in the short term but it should benefit the economy and public finances in the longer term."

Which brings us to Gibraltar where if PFIs were used the debt could be hidden off the ministries’ balance sheets and hence not be included in the government’s debt. However it is not clear if PFIs have been used here or not or if the government plans to introduce them.

Chief minister Peter Caruana has talked about PFIs and their use in projects such as St Bernard’s Hospital. A package was negotiated with RBS in which the bank purchased the former Europort building for 8 million pounds from the government then leased it back adding 52 million pounds to cover the conversion costs. As the conversion came in higher the overruns were paid by government. The government has a 20 year rental agreement with break causes and the Draft Estimates of Expenditure presented for the Budget show an annual rental of 4,554,000 pounds.  Some experts say this is a sale and lease back, full repairing agreement and not a PFI. I have asked RBS how they classify this deal but am still awaiting a reply.

Whether St Bernard’s Hospital even in the government’s eyes is a PFI or not has yet to be established. However there is a whole raft of other projects waiting in the wings for finance that could take on PFI status. These could include the airport terminal, the power station, waste treatment plant and future car parks, which have to be privately funded as the banks have refused to do so on the previous basis.

There are two aspects for Gibraltarians to consider here. By the government’s own figures it already has a half billion pound debt in gross terms with actual debt plus the provision of 20 million pounds set aside for future development funding. First – if it uses the PFI model to fund these other projects it will in the words of Andrew Tyrie be expecting the next generation of Gibraltarian taxpayers to pick up the tab. The second is that half a billion pounds debt for a small community like Gibraltar is for many a worrying prospect but the true future figure could be much, much higher yet hidden under PFI schemes.

GIBRALTAR NEEDS A FINANCIAL OMBUDSMAN

I was interested to read the comment last week of the Chairman of the Financial Services Commission, Markus Killick, on the need of a mature financial market such as Gibraltar to have a Financial Ombudsman.

By coincidence I was contacted two weeks ago by people who bank on the Rock asking me could I give them a contact for such a person. I thought about it and suggested they contact the FSC and the Government’s own consumer service. In the event I understand they contacted both, received a reply from neither, and ended up closing their account.

The point is there are two aspects to the day to day banking and investment services in Gibraltar. The first is Gibraltarians themselves and it seems incredible in this day and age they have no access to redress should they not be happy with the service they receive because the FSC, in the words of Mr Killick himself: “Whist we investigate complaints, this is from the perspective of assessing whether a regulatory breach has occurred rather than for redress.”

However Gibraltar’s financial centre is international which in its simplest form see Britons and other foreigners living in Spain using the Rock’s banks and investment companies. This is a more complicated group because their home experience has been when they have encountered a problem or needed to make a complaint there is an Ombudsman to fight their corner. When they experience such difficulties in Gibraltar they are shocked to find they are on their own, which in turn damages the Rock’s standing.

The fact that Mr Killick has come out to demand an Ombudsman either on the UK or Malta model is important because he is a financial expert whose views are taken seriously. It would appear the chief minister has turned a deaf ear to pleas for an Ombudsman from the now leader of the opposition, Fabian Picardo, over a six year period. Indeed such a proposal formed part of the GSLP’s manifesto at the last election and was marked for priority action if they had won.

Commenting on Mr Killick’s statement in the FSC’s annual report Fabian Picardo said: “There has been an obvious need for an Ombudsman to defend the consumer both in the day to day dealings with financial institutions but also in such cases as those which arose with TEPs. It is has been obvious to consumers, it has been obvious to the Opposition, now it is obvious to the FSC and the only person it doesn’t seem obvious to is the Chief Minister.”

Picardo added: “The need for a Financial Services Ombudsman is important not only for Gibraltarians but also for the Rock’s international standing as a financial services hub. Gibraltarians are amongst the thousands that use Gibraltar’s financial institutions and when they encounter problems find there is no means of redress if there is no regulatory breach in their complaint. That is why Gibraltar needs a Financial Services Ombudsman on the same basis as currently exists in the UK so all the customers of our banks and other institutions have this facility which is vital for our mature finance centre. I know that most if not all the financial institutions with a presence in Gibraltar would welcome this also.”

COULD GIBRALTAR GO UP IN FLAMES

As a Londoner born and bred who knows almost every nook and cranny of the Old Smoke it caused me much sadness, pain, shame and extreme anger to witness the riots of recent days. What has surprised me is that being 1,000 miles from home the events seem to be followed as much by Gibraltarians on giant TV screens and talked about in huddled conversations as by Brits themselves.

I have lived through riots before in Battersea when nearby Brixton went up in flames in the 1980s. However the photographs of buildings engulfed in an inferno and the burnt out skeletons are purely from the days of the blitz. I am not old enough to remember the war years but my grandparents and parents lived through the nightly bombing raids so it is part of my historic memory to which I will return later. When I walked about as a child the blackened ruins were all around me as stark memorials.

Make no mistake what is going on in London is pure criminality and has nothing to do with social exclusion or any of the other buzz words used by politicians and social workers to attempt to explain away the indefensible. On Thursday the British Parliament met to discuss this national tragedy. Rightly Labour Leader Ed Miliband condemned the mindless violence but there are those in his ranks, such as Ken Livingstone, who will try to portray it as a symptom of the coalition’s programme of cuts. Livingstone is an idiot who should spend more time with his newts!

So could such mayhem, senseless violence and looting be visited upon Gibraltar? My strong hunch is no, except in one scenario which I will return to later. However Gibraltar has a violence problem and whether the government wants to admit it or not it is there and needs to be tackled.

You may have followed the claims and counterclaims in PANORAMA over the Bayside School situation. If so I will leave it to you to decide which side is correct. However violence does exist in Gibraltar’s schools, whether it occurs in a set time frame is neither here nor there. In an email to PANORAMA the Royal Gibraltar Police stated: “...In the past year starting as from April 2010, six incidents of assault at Bayside Comprehensive School that have been reported to police, there has been one incident at Westside School also of assault.”

The Minister of Justice has been stabbed in broad daylight whilst walking through the streets with his children. There are also serious drunken assaults on Gibraltar’s streets at night. It was only weeks ago that the Leader of the Opposition, Fabian Picardo, was attacked with a friend as they returned to their car after dining out. A number of other attacks occurred the same night. I happen to know the man with Picardo has a disability which meant the GSLP leader not only had to defend himself but protect his friend too. Curiously the chief minister never contacted Fabian Picardo to express his concern over the attack, a basic human response, but instead bizarrely issued a press release to assure the public his “family” had nothing to do with it.

I happened to chat to a local lad yesterday, not a politico or a university student but a regular youth. First he told me there was indeed the fear of violence at local schools and he had witnessed it himself. I prefer to believe him than a No.6 press release. Then as we watched the London riots on Sky News he told me his parents had told him of similar violence in Gibraltar.

Of course what he was referring to was the “Palomos” disturbances of 1968 largely instigated because of the actions of a group of six, including two Triay’s, one being the father-in-law of the current chief minister. On April 6 of that year around 1,000 angry Gibraltarians rioted and attacked their properties with the Governor Sir Gerald Lathbury calling out troops in support of the police who had lost control.

The youth, in whose historic memory those events are enshrined just like the blitz are in mine, laughed that Peter Caruana with his Andorra solution was trying to recreate the same scenario as Triay and “Los Palomos”. I don’t believe Gibraltar will suffer a summer of discontent but equally I do not believe the majority of Gibraltarians will accept joint sovereignty with knobs on as in the Andorra model. If Caruana tries to impose it, he could well feel the political heat.

IS IT GOING TO BE AN OCTOBER ELECTION?

All too often what should be told first to Gibraltarians by their chief minister or GSD government appears in print in Spain. There are numerous examples, one of the most notable being Caruana announcement in Sevilla that he wanted to drag his people in to an Andorra-style joint sovereignty deal.

Now the respected Spanish national daily newspaper, ABC, says the election will be in October. A good guess or has somebody at No.6 been briefing or let the cat out of the bag? It notes Caruana will be bidding for a fifth consecutive term in power and hence to fend off his socialist candidate has become more nationalistic and anti-Spanish. Sorry I must have missed that.

The subject was raised as ABC says Spain’s minister for foreign affairs, Trinidad Jiménez, has invited her British counter counterpart, William Hague, to Madrid for a re-run of the Trini and Willie show that first took place in London in February.

On the agenda is apparently the rescuing of the Tripartite Dialogue Forum in which no dialogue has been taking place for some time. The urgency is that Spain goes to the polls on November 20, after which Trini might well be looking for a new job out of government, and hence ABC mentioning the potential problems over dates because of Gibraltar’s own October poll.

Of course the Holy Grail of Spanish politics is the country’s belief that Gibraltar belongs to Spain and each party recites that mantra whilst following either a hard or soft relationship with the Rock. The PP are the hard ball players and hence Trini had to assure them and the media in February that the PSOE government had not changed or softened its stance with regard to Gibraltar and Spanish sovereignty.

In the run up to the Spanish election PSOE will want to demonstrate that it is taking no nonsense from Caruana even thought the majority of Spaniards are only concerned with the economy and the unemployment totals.

There has been no ministerial of the forum since October of last year with none seemingly likely in the near future as the disagreements rage over policing. Furthermore Caruana has antagonised Spain by tossing the territorial waters issue in to the mix, waters which Madrid maintains are Spanish. Hence Spain also maintains it is a bi-lateral issue between London and Madrid, certainly nothing to do with the chief minister.

It is probably true to say that William Hague would happily put the forum out to grass for a while given the numerous international issues that trouble him such as Libya. However Trini would like to be seen to be taking action before Spain goes to the polls and any such talks would have to take place before a Gibraltar election campaign got underway.

However Trini might have some trouble in wooing Willie to come over to her place. The British Government is fully aware that if opinion polls are to be believed both Spain and Gibraltar could be heading for new governments. Hence there seems little point in having talks with the present incumbents in Madrid and on the Rock when in a month or so the policy of both governments could have changed dramatically.