Strategic PPPs The capability to project Frédéric Blanc-Brude f it were not for Slobodan Milosevic and of the Maastricht Treaty, and its corollary straightforward; the service itself is ISerb nationalism, certain things would be budgetary constraints. Defence PPPs perfectly known and easily specified; the different in Europe, not least defence spring from this conjunction of factors: challenge lies in building the right incentive procurement within the EU and a number the need for the Armed Forces to have structure: keeping everyone on board, of PPP deals. Indeed, a decade of peace flexible strategic capabilities at a lower through the highs and lows. keeping and force projection in the former cost. The ships were built to specification Yugoslavia, crowned by the Kosovo This article will look at two not only for use by the MoD but also for operations in 1999, did a lot to change the landmark projects prompted by the British use in the commercial market. When some minds of European leaders regarding what Ministry of Defence (MoD) regarding its of the vessels are not required for military they had to be capable of achieving strategic capacity to move troops and purposes, they are able to earn militarily and with whom. equipment by sea (Strategic Sealift) and to commercial revenue, thereby reducing As far as Europeans were deploy fighter planes over long distances overall project costs. The ships are concerned, the central defence thanks to refuelling aircraft (Future required to be available for service procurement issue had always been Strategic Tanker Aircraft). While the worldwide for routine military transport, interoperability – the ability to work former closed last year, the latter is participation in regular four-yearly together, and with the US, within NATO. supposed to see its preferred bidder exercises, support services in relation to Access to the battlefield, however, was appointed by the end of 2003. Both operational tasks and UK Joint Rapid never an issue: it was their own European projects provide the British military with Reaction Force (JRRF) operations. All six backyard. In the Cold War context, service of such a strategic nature that assets ships are now in use with four in service European forces had to hold their ground can be expected to be used in war zones. IJ under the MoD and two on charter for and wait for transatlantic back up. takes a closer look at each deal and commercial purposes. Transport and force projection was ponders on the limit beyond which private The project reached financial close America’s problem, not theirs. sector contractors can support military on 27 June 2002 and it will run until In 1998, Blair and Chirac met in operations. December 2024. Finance for the project Saint Malo for a first joint statement on was provided by Alliance & Leicester and the matter, and the word then spread 1. Strategic Sealift Lloyds TSB, secured by charges on the throughout the various channels of vessels, project cash flow and relevant European security, namely NATO and the Executive Summary commercial contracts. The successful EU: what Europe now needs is the The Strategic Sealift Service is provided to bidder was AWSR Shipping Limited capacity to project forces, potentially very the British MoD as part of the Private (AWSR), a consortium of shipping far (as far as East Timor) and possibly on Finance Initiative scheme. Its through-life companies including Bibby, Houlder several fronts at the same time. For the cost is estimated to be £950 million. The Hadley, James Fisher and Andrew Weir next few years, Allied Powers would still project provides the MoD with the service Shipping. AWSR provided the service on have to rely heavily on US (and of six standard commercial vessels for budget and on time with the last of the Russian/Ukrainian) strategic transport and military transport, enhancing sealift Roll-On Roll-Off cargo (Ro-Ros) vessels support capabilities, but Europeans were capability by being able to rapidly move being delivered to the MoD in April 2003, now convinced of the need to develop their vehicles and troops to crises spots around 20 months ahead of schedule. own fleets of ships and planes to be in a the globe. position to send their own troops, guns Because of the obvious insurance, The Project and fighter-bombers anywhere they personnel and service delivery issues that The service element of Strategic Sealift, deemed necessary. characterise such a project, Strategic Sealift coupled with the initial requirement for This shift in the European strategic is a good example of what defence PFI is capital investment, makes it good PFI outlook coincides with the implementation about. The financing is relatively material. The possibility to combine www.infrastructurejournal.com 55 commercial and military activities further 2003, the new ships were eligible for a Germany, and that might well end up enhances the partnership; it allows the subsidy from the EU Shipbuilding being paid for by the taxpayer, as the contractor to look forward to substantial Intervention Fund, seven per cent in the signature of the PFI concession is further upsides, includes the sharing of over- case of Flensburger and nice per cent for delayed. The MoD and its representatives heads with the MoD and most Harland & Wolff. can only repeat ad nausea that the project In October 2000, AWSR was named will deliver value for money eventually, preferred bidder1. AWSR Shipping Ltd was once all contractual hurdles have been formed by the British shipping companies overcome, and that since the ships were This shift in the Bibby, Houlder Hadley, James Fisher and non war-like, procurement was subject to Andrew Weir Shipping with the sole EC treaty and public procurement rules. European strategic purpose of bidding for the £950 million The MoD was then expecting to contract. As the SPV, AWSR subcontracts have the PFI concession contract signed by outlook coincides various segments of the project to its 2001 but, for a number of reasons shareholders such as the supervision of including developing reservist regulations, with the construction to Houlder Offshore potential tax and banking regulation implementation of the Engineering, the supply of crew to Bibby changes, finance and post TA911 Line and ship management to Andrew Weir. insurance, the deal was not closed before Maastricht Treaty, and However, AWSR, its financial June 2002. Construction, however, went backers and H&W hit major contract on as planned and the first ships were its corollary budgetary problems soon after the PB delivered in the summer of 2002, when announcement. In order to preserve they were almost immediately sent to the constraints delivery schedules and to avoid losing the Gulf, confirming the importance of timing, expected and substantial subsidy, the the relevance of the preliminary agreement MoD signed a preliminary PFI agreement and the relevance of the choices initially importantly allows for a lower price of with AWSR which enabled them to sign a made by the MoD. service for the MoD. contract with Flensburger and one with In April 2003, Finnish Ro-Ro Under the terms of the operational Harland and Wolff, on the basis that if the agreement, four of the ships are fully PFI agreement did not go ahead, the MoD would assume responsibility for the employed by the MoD (on take-or-pay The four ships terms) while the other two can be employed shipbuilding contracts. Eventually, by AWSR commercially on the unresolved commercial issues between under MoD control understanding that they are available to the AWSR and H&W led to the MoD taking military in a the event of a crisis and within over the contract for the building of the are paid for by a given timeframe. two ships on the same terms. All costs The MoD needs to have certain incurred by the MoD would be deducted a take-or-pay capabilities available at all times. The from AWSR’s subsequent service charges, embarrassment of British forces being but no interest charges would be added agreement grounded following a delayed PFI project – on. such as the Hawk training deal - is to be In March 2001, AWSR officially avoided at all costs. It is bad for the Service confirmed that contracts had been placed operator Transfennica chartered the last two and very bad publicity for PFI in general. for the six Ro-Ros required by the British ships built for the Strategic Sealift Service, Thus, securing timely delivery was a key MoD for its Strategic Sealift Service. In butnot required for full-time MoD use. part in winning the initial bid. effect, and contrary to a deal like Skynet 5, They are on charter until October 2005. To guarantee that the MoD would the preliminary agreement signed between have its Ro-Ros on time, AWSR proposed the MoD and AWSR at the end of 2000 had The Business Model to have four of them built in Germany the MoD shouldering some risk until the The transaction’s combination clause (Flensburger) and the other two in PFI agreement was signed. made the deal attractive for bidders at the Northern Ireland (Harland & Wolff) thus At this point in time, the British tender stage because of the potential for a gaining substantial construction time. Government is under heavy criticism revenue upside. The blend of fee-based There was a further catch: if construction about the deal. MPs and unions talk of a service to the MoD and commercial orders were placed by 31 December 2000 project that took away ship construction revenue is an attractive incentive for and delivery was made by 31 December jobs from the UK to Northern Ireland and sponsors to earn additional commercial 56 www.infrastructurejournal.com revenue on an investment.