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Scotland outlines new funding process

The Scottish Government has outlined an alternative mechanism for funding public private sector partnerships in providing public infrastructure.

Launching a consultation document outlining their proposals, Finance Secretary John Swinney said: "We believe there is a more effective way of funding our vital public infrastructure than traditional costly PFI."

The 'Scottish Futures Trust' is expected to be a limited company and its activities would be confined to providing infrastructure within Scotland.

It would obtain its funding through, says the Scottish Government, bonds and other appropriate financial instruments at rates which would be cheaper than those involved in PFI procurements. Some strategic land assets could be transferred to it.

Ministers favour placing the Futures Trust investment vehicle in the private sector but with a 'public sector ethos'. They believe that the advantages of this approach offering the prospect of annual addition to overall investment and the harnessing of commercial know-how outweigh the disadvantages of likely lower borrowing rates.

The proposals are seen as a development path by the SNP administration, which has allowed the mix of procurement methods operated by the previous administration to continue in most of the projects which were already in preparation.

The consultation paper says that for all new projects which are judged appropriate for private sector involvement, that the Non-Profit Distributing Model will be used. This model excludes scope for uncapped investor returns.

The proposals have received a cautious response from business. CBI Scotland Director Iain McMillan said: "we welcome the acceptance that the private sector will remain involved in developing infrastructure and providing services through the lifetime of projects.

"However, it remains to be seen whether the proposed non-profit distributing model and creation of a new quango will actually add value or provide better value for money."

The consultation runs until March 14th 2008.The document can be downloaded from www.scotland.gov.uk

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