CLOSE to £140 million will be paid out by Islanders over the 25 years of the Private Finance Initiative (PFI) to rebuild roads.
The Isle of Wight Council estimates the PFI could be worth £860 million in total investment.
This would be made up of £325 million in government credits, the £140 million in the Isle of Wight Council highways maintenance budget over 25 years (currently estimated at £5.5m annually) plus increased value of the money.
The man leading the project, Jay Jayasundara, said they would learn from the mistakes of other PFIs to ensure the Island received the best value for money.
He described the scheme as unparalleled major public investment by government without too many strings attached. The Island has been given approval in principle by the government for £325 million investment, coupled with an estimated £137.5 million from Island taxpayers.
Mr Jayasundara justified the use of £7.6 million over the next four years — more than double the original estimate — on the procurement process as essential for ensuring value for money. Several high-profile PFIs have been criticised for running over budget, while others have been forced to ask for government bail-outs because private financiers have been hit by the recession.
Mr Jayasundara said, however, that by investing millions at this stage it would help ensure they had a complete picture of the work required and the technical and legal issues surrounding the PFI.
The IW Council will draw up targets the successful PFI-bidder must meet to receive service payments — made from £24 million government grants and £5.5 council contributions annually.
"The council sets the standards that must be met. If they do not meet the targets, they do not get paid," said Mr Jayasundara, who is contracted to the council until 2013.
• Island businesses will have the chance to learn more about PFI and possibly become involved, at a conference on August 31. The conference, at Quay Arts, will set out the opportunities for Isle of Wight companies as part of the PFI.
Anyone who wants to attend must register with the council, e-mailing highways-pfi-conference@iow.gov.uk.
PFI - How it will work
• The eventual corporation that will carry out the work will be a called Special Purpose Vehicle (SPV), made up of designers, rebuilding contractor, maintenance and a financier, probably in the form of a bank.
• On current estimates, the Department of Transport will pay the SPV £24 million a year in government credits and the council will pay a further £5.5million annually, in place of the current highways maintenance budget.
• The cash from the government is funded from the national revenue support grant pot, an annual payment to all local councils.
• The SPV will be expected to hand back maintenance of the roads to the council at the end of the 25-year contract, however, if it has not fulfilled the standards set by the agreement, it will have to complete the work even if it takes longer.
• The SPV must prove it will have sufficient equity and surplus cash to cope with changes in the financial markets and still get the job done. Where finance has failed in other projects, the government has been asked to step in.
• The Isle of Wight Council must prepare a shadow business plan to prove the project will be attractive to the private sector.
• As part of its bid, the successful SPV must show how it will create opportunities for Islanders, such as scholarships.
• The Isle of Wight Council is due to complete its outline business case and submit it to the Department of Transport by this autumn. A two-and-a-half-year procurement process will follow, with the contract due to be signed in 2012 and work starting in 2013.