Solicitors not hopeful of rush of Scottish PFI water contracts

The signing of Scotland's first PFI water contract might not be the hoped-for trigger for other Scottish PFI water contracts, according to the lawyers involved.

Water authorities across the UK are having to build new sewerage works to bring water purity into line with EU standards. In England and Wales the privatised water authorities are able to raise money through customer charges and borrowing but in Scotland the water authorities are still in public hands. The government is hoping that the signing last month of the first £10m PFI project to build, own and operate two new sewerage works at Inverness and Fort William will be the trigger for dozens more.

But Wilde Sapte partner Bruce Johnston, who advised French bank Societe Generale in financing the deal, said that other proposed works fell under different Water Authorities' jurisidictions. “They have different lawyers and different financial advisers, so whether our deal will be used as a template remains to be seen. They may well start all over again from scratch.”

The biggest proposed project is a £100m works at Seafield outside Edinburgh. Catchment, the consortium that was awarded the first PFI project at Inverness and Fort William, has not been shortlisted for this one. A handful of other consortia is on the shortlist.

Johnston said his deal had to combine two proposed works, on opposite sides of Scotland, to make the project large enough to be worthwhile for investors. It was in negotiation for a year. “It was put on hold in April while all the local authorities in Scotland reorganised the water authorities.”

Previously the local authorities were responsible directly for their region's water treatment, but responsibility has now been divided between a handful of regional water authorities with the two planned sewerage works falling in the North of Scotland Water Authority's patch.

The deal was also one of the first to be hit by Kenneth Clarke's budget, in which he reduced the tax allowance on plant that will last longer than 25 years from 25 per cent a year to 6 per cent – the move was seen as the equivalent of Labour's windfall tax on utilities. Johnston said he was eventually able to get around the problem.

Johnston and partner Christopher Clement-Davis led the Wilde Sapte team. Allen & Overy and Glasgow firm Maclay Murray & Spens acted for the Water Authority and partner David Henderson from Glasgow firm MacRoberts acted for the construction consortium Catchment.