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First PFI avoids financial failure
00:00 11 Aug 1999
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by John Leitch
The collapse of the first PFI project, the £43 million Royal Armouries Museum in Leeds, has been avoided. The project had run up debts of £20 million as a result of flawed financial calculations over anticipated visitor numbers.
Owner, Royal Armouries International, was a special purpose vehicle (SPV) containing venture capital group 3i, the Bank of Scotland, Yorkshire Electricity and facilities management provider Gardner Merchant.
Heery International was project manager for the venture which opened in 1996. Alfred McAlpine undertook the £30 million main contract. Mike Clayton, Heery's project manager on the contract said: "The scheme came in slightly within the total budget and everyone was really pleased. This is not a construction problem."
The Armouries' £20 million debt stems from lower visitor levels than those envisaged in RAI's business plan - it forecast 750,000 visitors a year, with 650,000 visitors being viewed as the number needed to break even. Since opening, attendance has run at just 400,000 a year. It is the country's second-most-expensive museum with individual tickets priced at £7.95 and parking a minimum of £2.
The Bank of Scotland had threatened to call in its loan to RAI, thereby passing the project over to the public sector. However a Department of Culture, Media and Sport spokesman said: "Our bottom line was that we were not prepared to take the project back into the public sector because to do so would have brought with it a £20 million capital debt. Our second objective was to keep the museum open, so we encouraged the SPV partners to restructure their PFI agreement."
Following crisis talks between the owners last weekend, a deal was thrashed out. The Government will provide a one-off payment of £1 million, while future grant aid jumps to £4 million a year. The museum was built with £20 million from the Treasury plus a non-returnable donation of £8.5 million from the City of Leeds. The RAI partners provided £12 million of equity to make up the balance.
l The £17 million National Glass Centre in Sunderland, a prestigious lottery-aided project, has started shedding jobs while in Sheffield, the Centre for Popular Music, another lottery-funded scheme, has had "a lot of staff laid off" because visitor numbers have not been as high as expected, said the DCMS spokesman. Sheffield's music centre opened in January.
The collapse of the first PFI project, the £43 million Royal Armouries Museum in Leeds, has been avoided. The project had run up debts of £20 million as a result of flawed financial calculations over anticipated visitor numbers.
Owner, Royal Armouries International, was a special purpose vehicle (SPV) containing venture capital group 3i, the Bank of Scotland, Yorkshire Electricity and facilities management provider Gardner Merchant.
Heery International was project manager for the venture which opened in 1996. Alfred McAlpine undertook the £30 million main contract. Mike Clayton, Heery's project manager on the contract said: "The scheme came in slightly within the total budget and everyone was really pleased. This is not a construction problem."
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The Armouries' £20 million debt stems from lower visitor levels than those envisaged in RAI's business plan - it forecast 750,000 visitors a year, with 650,000 visitors being viewed as the number needed to break even. Since opening, attendance has run at just 400,000 a year. It is the country's second-most-expensive museum with individual tickets priced at £7.95 and parking a minimum of £2.
The Bank of Scotland had threatened to call in its loan to RAI, thereby passing the project over to the public sector. However a Department of Culture, Media and Sport spokesman said: "Our bottom line was that we were not prepared to take the project back into the public sector because to do so would have brought with it a £20 million capital debt. Our second objective was to keep the museum open, so we encouraged the SPV partners to restructure their PFI agreement."
Following crisis talks between the owners last weekend, a deal was thrashed out. The Government will provide a one-off payment of £1 million, while future grant aid jumps to £4 million a year. The museum was built with £20 million from the Treasury plus a non-returnable donation of £8.5 million from the City of Leeds. The RAI partners provided £12 million of equity to make up the balance.
l The £17 million National Glass Centre in Sunderland, a prestigious lottery-aided project, has started shedding jobs while in Sheffield, the Centre for Popular Music, another lottery-funded scheme, has had "a lot of staff laid off" because visitor numbers have not been as high as expected, said the DCMS spokesman. Sheffield's music centre opened in January.
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