The Scottish government confirmed today that it has committed to using the Non-Profit Distributing (NPD) financing model to replace the discredited Private Finance Initiative (PFI) model.
Scottish infrastructure and capital investment secretary Alex Neil said the new NPD model will play a pivotal role in improving Scotland’s infrastructure and supporting the Scottish economy.
Neil said NPD removes the excessive profits made by private firms on some PFI projects, and ensures any surplus funds can be reinvested for public benefit.
Funding for new a £2.5bn project pipeline using NPD will be taken forward by Scottish government spending quango the Scottish Futures Trust. Projects in the pipeline include a improvements to the M8, the Aberdeen western peripheral route, and the new Royal Hospital for Sick Children/Division of Clinical Neurosciences.
Non-Profit Distributing model
The NPD model was developed and introduced as an alternative to and has now superseded the traditional PFI model in Scotland.
The NPD model is defined by the broad principles of:
- Enhanced stakeholder involvement in the management of projects
- No dividend bearing equity
- Capped private sector returns
The NPD model aims to eliminate uncapped equity returns and limit these returns to a reasonable rate set through competition. The NPD model is not a not-for-profit model — contractors and lenders are expected to earn a normal market rate of return.