Damian Arnold spoke to Essex County Council’s Tony Ciaburro about a partnership that could revolutionise delivery of local transport schemes in the county.
Essex needs an estimated £7 billion to meet its local transport needs in the next 20 years and finding that money is a major challenge for a county council that currently spends around £100 million a year on transport. Major house building in the Thames Gateway and the M11 Corridor, pressure for a second runway at Stansted Airport, major port proposals for Shellhaven and Bathside Bay and the widening of the M25 are just some of the projects that will require upgraded public transport and major upgrades to local roads.
Essex County Council wants to create a ‘Capital Programme Delivery Vehicle’ to breach the funding gap and take a strategic overview on planning and delivery of the council’s planned capital projects over a broad geographical area. The ‘vehicle’ would have the commercial freedom to create new revenue streams but, crucially, it would still be publicly accountable to the council and other public sector partners such as the Highways Agency.
“We are engaging with the private sector to find a model in which risk is shared between us,” says Essex’s Service Director for Highways and Transportation Tony Ciaburro. “The private sector can secure resources more easily and deploy resources in a way that we can’t but at the same time we don’t want to lose public accountability. It’s an ambitious plan but it cuts right across all the current government reviews such as Lyons (local government finance), Gershon (local government efficiency) and Eddington (transport funding).”
The council has appointed consultant Gifford to help identify and assess possible models for a ‘vehicle’ for delivering the county’s capital transport programme over the next 20 years and to get feedback from leading civil engineering contractors. The result – the Essex Infraco – is something completely new.
It envisages a partnership that would include the county council and other public bodies involved in transport as well as the private sector including: consultants and contractors that would design and build new road schemes and mass transit systems; the banks that would fund them and the developers standing to benefit that would contribute towards them.
The Essex Infraco would be more flexible than a traditional local authority PFI model under which the council has to meet a rigid set of performance indicators set by the Treasury in order to gain the PFI credits to pay back the private consortium over a 25 year period. This system is complicated, inflexible and frustrating for the local authority that has to meet nationally set performance indicators that are not necessarily relevant or helpful to the local area, says Ciaburro.
“We were the first local authority in the country to do a PFI road scheme and we learned good and bad lessons from that,” he adds.
“We are not minded to follow the traditional PFI route because of the bureaucratic hoops you have to jump through to get the credits from the Government,” he adds. “There are too many constraints to a PFI and in the transport business new opportunities come along which you could miss out on.”
Essex Infraco would in theory be free of such bureaucracy and would be able to raise hundreds of millions of pounds from the banks by using new revenue streams. Essex currently plans to invest £1.3 billion in transport over the next 10 years but existing sources of revenue would only cover 40%, leaving a funding gap of £770 million. Essex is already looking into the feasibility of a road building project and a road tunnel that would be funded by a toll.
“We are seriously considering it as a potential revenue stream and have some thoughts around ports and airports,” says Ciaburro.
Once the toll pays for the scheme, it could then be used to fund other projects for the Infraco. It’s a similar principle to the toll used to pay for the Dartford Crossing, except that the annual surplus of around £50 million goes straight to the Treasury - much to the chagrin of Essex and Kent County Councils which argue that the money should be reinvested locally.
The Infraco would be further boosted by a new form of developer contribution that Essex is set to launch. The new tariff would replace the more ad hoc Section 106 agreement under which developers agree to include something in their scheme that will benefit the local community such as a school, GP surgery or affordable housing. The tariff could be as high as £20,000 levied on every new home delivered in Essex. Section 106 agreements currently contribute on average the equivalent of £3,000 for each dwelling.
Should such a tarrif work in practice, Ciaburro is confident that local authority funding would be revolutionised and the council could spend less time and money bidding for relatively small pots of funding from Government.
“There are many things we can bid for such as Local Transport Plans, Transport Innovation Fund and Growth Area Funding, but the effort that goes into bidding for a limited pot of money and often to do something we don’t really want to do right now is ridiculous. They are astronomically expensive to bid for because of all the hoops we have to go through.”
Ciaburro is hopeful that an Infraco can be created but he warns that the government will need to waive the usual procurement rules for a pilot scheme otherwise the private sector may be scared off.
“We need to see if the government is genuinely interested to relax some of its procurement rules so that we can test out the scheme. Nobody wants to go through such a long bidding process and then be dropped. We’ve got to get past all that.”
Box - the Study
Gifford explored three options for the Essex Infraco
The three models were scored for programme governance, flexibility, skills and incentives and corporate freedoms. The completely separate commercial entity (option C) scored highest because it would offer more flexibility, skills and incentives and far more commercial freedom. Yet it would be possible to maintain programme governance in line with local authority objectives.
“The study demonstrates the merits of taking a more ambitious approach towards establishing an integrated strategic partnership with the private sector,” says Gifford director David Tarrant.
The study found that the model would lead to efficiency savings of at least 15%. This is based on the efficiency savings achieved by private finance initiatives such as Building Schools for the Future and NHS Lift where the private firms have a long term relationship with the public body to deliver a package of schools or GP surgeries. Over a 10 year period this could close Essex’s £770 million funding gap by around £200 million.
The model would also make it easier to secure contributions from third parties such as developers and there would be far more scope for innovation that could lead to further savings.
Four leading civil engineering contractors interviewed by Gifford confirmed there would be a big appetite in the market to become involved in such a partnership. The model would make it easier for contractors to become involved earlier in scheme development which can lead to big savings, they said.
Delivering a bundle of projects over a longer timescale and spreading the risk would also lead to big savings, the contractors said. They were also in favour of having equity in an Infraco that would give them a commercial interest in delivery of a whole programme of schemes and not just one project.
Essex is expected to put the proposal to members in the next two to three months and it is hoped it will commit “significant funding” for a detailed development programme.
“We are very pleased to work with Gifford,” says Tony Ciaburro. “We felt their skills and entrepreneurial approach to new ideas would be helpful.”
Bridging the funding gap
Gifford
Published in Transport Times, 16 February 2007