The Scottish government has been warned that greater transparency and clarity is needed on financing future public infrastructure projects, with current projects set to cost more than four times their value.
A hard-hitting report by public sector spending watchdog Audit Scotland says greater transparency is needed over decision making on privately financed infrastructure investment to show that projects represent value for money.
The report says a £3.3bn investment programme in Scotland's infrastructure has enabled more public buildings and new roads to be built, but that the Scottish government needs to be clearer about how and when they use privately financed contracts.
Models for investing in public infrastructure, such as roads, schools and hospitals, using private finance have been in place since the 1990s, enabling additional infrastructure investment.
But, says the report, private finance comes at a cost. Over the lifetime of active PFI, NPD and hub contracts, the public sector makes annual payments to cover the cost of financing, building and maintaining the assets, as well as other services the private sector is providing. Currently, assets worth £9bn are under contract and the Scottish public sector will make payments worth over four times the capital value of the assets built (over £40bn), with £27bn still to be paid between now and 2047/48.
Caroline Gardner, auditor general for Scotland, said: "The Scottish government has accepted the costs of using these contracts to increase total infrastructure investment. But the impact on future budgets is significant, as is the overall amount of money that will be repaid.
"With the introduction of the Mutual Investment Model, the Scottish government has an opportunity to be clearer about the additional costs of investment associated with using privately financed contracts for specific projects. This will enable better reporting of how the overall combination of project funding is being used to maximise the benefits of investment across the whole public sector."
Graham Sharp, chair of the Accounts Commission said: "We've found that local councils have been left with limited options other than to construct new and replacement public buildings through private finance deals. The main consideration for councils has been the affordability of repayments, with little focus on the wider implications of using private finance.
"With a new mechanism for funding Scotland's schools infrastructure, local councils must be fully aware of the benefits and risks of funding the entire construction costs with a mix of capital grants, borrowing powers and other resources."
Responding to the report, the Scottish government says it no longer uses either of the private finance mechanisms covered by the Audit Scotland report, and says it has made changes to the way it invests in infrastructure, including the introduction of a new method for enabling new schools development - jointly developed with local government - and a full published business case of the Mutual Investment Model of private finance.
A Scottish government spokesperson said: “The Scottish Government no longer uses either of the private finance mechanisms covered by this report. As the report recognises, NPD and private financing through hub companies has enabled £3.3bn of additional investment in Scotland’s infrastructure that would not otherwise have been possible, given budgetary constraints placed on the Scottish government by the UK government.
“The value of investing in infrastructure goes beyond the physical homes, schools and hospitals. It has the capacity to unlock economic potential, support jobs, and enable our businesses and communities to grow - as outlined in our National Infrastructure Mission.
“As an open and transparent government, we explain our approach to investment decisions and financing through the publication of multi-year Infrastructure Investment Plans, and key sectoral strategies. We also update parliament twice each year on the progress of every major project, and on overall investment and affordability.
“We will now take the necessary time to reflect on the findings of the report.”