Item 5 on the agenda this afternoon is a statement by the Minister for Finance and Trefnydd on the mutual investment model, and I call on the Minister for Finance and Trefnydd, Rebecca Evans.

Thank you. Earlier this year, I welcomed the report of the Finance Committee into sources of capital funding and its recommendations regarding the mutual investment model. A lot has happened since that time. Hard on the heels of a decade of Westminster-imposed austerity, from which our capital budget has barely recovered, a pandemic has struck Wales—twin threats that we must address by delivering projects that will drive forward our economic recovery, creating employment, training and supply chain opportunities. The mutual investment model will help us do just that, accelerating investment in projects that would not otherwise have been affordable.

Our strict approach to the use of MIM remains unchanged. We use conventional capital first to fund public infrastructure and we will we use every penny of it. We'll then use our limited borrowing powers. We have also enabled local authority and housing association borrowing to maximise support for the urgent needs that our communities face. But even that is not enough to cover those urgent needs.

We have developed a carefully designed model to meet those needs in the face of a decade of austerity, which we must remember began with dramatic cuts to capital budgets at a UK level. And so, today, I want to set out how the model will contribute to our economic recovery while delivering stretching community benefits, without putting further strain on our limited capital budgets. I also want to say a few words about how the Development Bank of Wales is acting as the public shareholder in MIM schemes, increasing transparency and improving value for money for the public sector.

I am delighted to report that, at the end of last month, we awarded a contract to the Future Valleys consortium to complete sections 5 and 6 of the A465 dualling project. This scheme will complete the dualling of the A465—a long-standing commitment of the Welsh Government—and ensure that the full range of benefits are realised for the region. It will complete a continuous, high-standard alternative route to the M4, improve the critical northern cross-valley link for the south Wales metro, provide reliable access into the metro hubs and contribute to modal shift. The scheme will improve accessibility to jobs, key public services and facilities for active travel in the region.

The successful completion of this groundbreaking MIM procurement demonstrates what Wales can achieve in difficult times when we address challenges with creativity. Namely, it's the first public-private partnership project of this scale to be signed in the UK since the outbreak of COVID-19. And it's the first PPP project of this scale where negotiations were completed remotely, and these innovations show Wales leading the way.

A wide range of community benefits will also be delivered through the scheme, supporting the objectives of the Valleys taskforce. These benefits include contractual targets for training and jobs for local people, and local supply chain opportunities. An estimated £400 million of project spend will be in Wales, with £170 million within the Heads of the Valleys region, generating a projected value of £675 million for the wider Welsh economy.

Maximising youth employment and skills development is key to our priorities for the reconstruction effort. The A465 re-dualling will provide over 120 apprenticeships, 60 traineeships, over 320 internships and over 1,600 national qualifications, leaving a legacy of improved skills. Our commitment to decarbonisation is also reflected in the contract award. Construction carbon will be offset by planting an additional 30,000 trees. Pre-construction ecological surveys and site clearance will start almost immediately, with construction due to begin in earnest next spring. Construction is due to be completed by mid 2025.

Turning now to our education programme: at the end of September, the Welsh Government established the Welsh Education Partnership Company, known as WEPCo. WEPCo is a joint venture between Meridiam, our private sector delivery partner, and the public sector. WEPCo will be responsible for facilitating the design and delivery of up to £500 million of additional investment in new educational facilities using the standard MIM contract. There are currently around 30 schools and colleges in the programme's pipeline to be delivered over the next seven years—a crucial investment in our future generations in the wake of austerity, delivered during a pandemic that would not have been possible without this funding model. Each project will be competitively tendered by WEPCo, through platforms such as Sell2Wales, providing opportunities for construction contractors and the wider supply chain while maximising job opportunities for people in Wales. WEPCo is contractually required to commit to minimum levels of engagement with the local supply chain on every project.

The WEPCo model will focus on delivery against key Government policies and agendas, including the Well-being of Future Generations (Wales) Act 2015, the Curriculum for Wales, and the drive towards carbon neutrality, as well as compliance with the code of practice on ethical employment. WEPCo's performance and objectives are managed and monitored by a strategic partnering board made up of the Welsh Government, local authorities and further education institutions. A full suite of community benefits will also be delivered. WEPCo has already begun working with the University of Wales Trinity St David to introduce the Welsh education partnership academy, an online resource to enhance skills and capability in the sector.

Work has begun on the first MIM school, a new all-through school in Flintshire, which will co-locate two existing schools onto a single site, ensuring the efficient use of public funding alongside the delivery of community benefits. The Welsh Government also continues to support the Velindre NHS University Trust to deliver the new Velindre cancer centre. This clinical model, proposed by the trust for the scheme, is currently subject to independent advice, and the outcome of the advice is expected by the end of November. We will of course keep Members updated on progress.

An important innovation of the MIM is a public sector shareholding of up to 20 per cent of the risk capital in each scheme. This shareholding provides transparency whilst ensuring that the public sector participates in any return on investment. The Development Bank of Wales is using financial instruments to make significant contributions in areas extending beyond business support, including housing, energy and tourism. So, given its expertise, the Welsh Government determined that the Development Bank of Wales would act as the public sector shareholder in MIM schemes, carrying out due diligence on proposed investments and managing the investments over the long term. As the public sector shareholder, the bank will nominate a director to the board of each MIM project company. DBW will monitor the performance of each investment, provide expert oversight and ensure early warning of potential issues that might impact on the recoverability of the investments.

So, to conclude, the successful deployment of the mutual investment model is making an important contribution to our efforts to kick-start the economic recovery. The model will also deliver stretching community benefits, whilst fostering over £1 billion-worth of urgently needed investment in public infrastructure in Wales. In reaching these groundbreaking agreements, Wales is at the forefront of international efforts to modernise the concept of public-private partnership.

Thank you, Minister, for your statement this afternoon and for welcoming the Finance Committee's report regarding the mutual investment model. I did listen to your opening comments, but I think even you would have to admit that what you called 'Westminster-imposed austerity' has certainly come to an end—well, certainly recently this year, when you look at the massive amounts of additional investment that have been coming from Westminster to the Welsh Government to deal with the COVID pandemic crisis.

You mentioned the awarding of the contract to the Future Valleys consortium to complete sections 5 and 6 of the A465 dualling. We are well aware, all of us, of some of the long-standing issues that have plagued the current Clydach gorge section of that project, significantly over budget and over time. Can you give assurances that sections 5 and 6 will be better managed as this MIM scheme proceeds? Also, if you could say a little bit more about the community benefits, as I've been asked by constituents in the Gilwern area about those, and they're eager to know that those benefits do actually come on the ground, within good time and do deliver what is initially promised by contract.

You mentioned decarbonisation in your contribution, and specifically the planting of 30,000 trees. This is great news, by the way—I'm all for the planting of trees, particularly with road projects—but what is the timescale for this planting, and can you give us an estimated carbon recovery from that tree planting? We often talk about the need to input carbon budgeting into the normal budget process, but we don't often then hear the figures about the carbon recovery that's anticipated. So, either if you can give us that today, or if your officers can work it out—I think many Members would agree that carbon sinks are the way ahead. So, we need to see some figures for that.

You mentioned education and the tendering of projects using MIM contracts by WEPCo. This sounds a good opportunity for contractors. Will you be ensuring that there is an even playing field for contractors to bid? Often, in the past, this sounds great on the face of it, and we all see the importance of public sector procurement, but too often, in practice, contractors don't feel that they do have an even playing field to bid on, or the process could be better. It may be a commitment to minimum levels of supply chain engagement, which you talked about, but we want to aim higher than that, don't we? This isn't just about minimum standards, this is about reaching a higher level and, of course, having an ambition. Even if, at the start, that ambition seems too high, it's something that we should be aiming for.

I'm pleased that the future generations Act is included in your statement. Too often, it's seen as an add-on, and something that isn't incorporated into all departments in early parts of the decision-making process. So, I'm pleased to see that there. How are you ensuring that the delivery of that Act is central to the MIM model? I know there were similarities with private finance initiatives, some bad, some good, but I know that MIM does have several advantages over that. But I think if we can incorporate the future generations legislation fully into the MIM process, then that's beneficial to the way we proceed.

You've mentioned online resources. Now, in the past, I think that probably would have been less significant than it is now, but, clearly, at the moment online resources are all-important with the pandemic and lockdowns going on. So, could you tell us more about COVID-19 adaptations of the MIM process, certainly over the next couple of years?

Thanks for the update on the Velindre cancer centre. Please keep us updated on that and when that independent advice will be received. You mentioned the Development Bank of Wales and Welsh Government determining that that would act as a public shareholder in MIM schemes. That sounds eminently sensible to me, but can you give us an assurance that due diligence will be carried and it will be integral to the use of the development bank?

Finally, what safeguards can you give us that due diligence is being properly exercised across all of these potential MIM projects? Because we know what happened with the Heads of the Valleys scheme—a very ambitious scheme, something we all support, but at the end of the day, over time and over budget, and due diligence does seem to have failed there. So, what safeguards are you incorporating into the MIM system to make sure that doesn't happen on the next sections?

Thank you very much to Nick Ramsay for his questions, and also his particular interest in this agenda. Of course, I can't resist referring to Nick Ramsay's first comments about austerity, and the fact that the taps have finally been turned on in terms of investment, but it's unfortunate that it's taken a pandemic for that to happen, and it does show that austerity has been a political choice all along.

But given the helpful nature of Nick's questions, I won't push that any further, and I'll turn now to the question that was about the difference between the previous parts of the A465 and why this scheme is different to what's preceded it. That's because the A465 section 2 scheme, to which he referred, where there have been issues in terms of the timetabling particularly, is not a MIM scheme. That's an early contractor involvement scheme, and so there are some really significant differences between the two, and we shouldn't see those issues that we saw with the section 2 scheme with the MIM, because MIM is essentially a fixed-price contract. Good risk transfer has been achieved contractually, and that means, with a small number of exceptions, the majority of the programme and the cost risk sits fully with Future Valleys. Future Valleys, of course, I referred to in my statement as being the organisation, if you like, with which we have entered into the contract. Future Valleys won't get paid until the service is operational, and that, of course, incentivises them to meet their construction programme. The contract includes strict restrictions on the extent of traffic management and road closures—I know that's a particular concern locally.

There are stringent financial penalties for non-conformity with the contract restrictions, and again, this is all very different to the approach that preceded it. During the tender stage, over £7 million of surveys have been undertaken, and the scope of the investigations was developed jointly by the Welsh Government and the bidders, comprising ground investigations and intrusive structural investigation of the existing structures. Those investigations have enabled Future Valleys to understand better the nature of the site, and therefore to accurately price the risks. So, I think that this scheme is very different to that which preceded it, and it brings with it a number of important benefits as a result.

Nick Ramsay was particularly interested in the community benefits, and especially those that relate to the A465. The contract will provide over 120 apprenticeships, 60 traineeships, over 320 internships and 1,600 national qualifications. That's really delivering on our priority of maximising our contribution to youth employment and skills development, especially at such an important time. The project will also help us redress some of the inequalities that have been exacerbated by the pandemic through providing employment where it's needed most, and it will also, in the construction phase alone, generate the equivalent of 59.6 years of work for those who are in the NEET or long-term unemployed category, and 125 years of work for workers from disadvantaged backgrounds. I think that's really important in terms of those benefits. And over 80 per cent of the total estimated spend on goods, services and overheads during the construction period will be spent on businesses based in Wales. Again, that's something, I think, that we will all want to welcome.

I'm very conscious of the importance of building schemes that are environmentally sustainable, and the MIM scheme will certainly be built with long-term sustainability in mind, in accordance with the well-being of future generations Act. For example, to provide environmental sustainability, key design principles for Velindre cancer centre include the use of natural resources and energy efficiency in all possible areas. The A465, while improving the safety, connectivity and congestion of the local area will also improve the resilience of other Welsh roads by becoming an alternative route during periods of congestion, maintenance or major incidents. And obviously, new learning environments will also be built through the twenty-first century schools programme, and they must achieve the EPC rating of A and the Building Research Establishment environmental assessment method 'excellent'. So these things are very much at the front of our minds as well.

And then, finally, there were questions relating to monitoring our investments and DBW's performance. Well, having a public sector-nominated director on the board of companies delivering the public assets will provide a high degree of transparency. Furthermore, public investment in MIM schemes will also ensure a flow of shareholder information about the performance of the company back to Welsh Ministers. And Welsh Government has entered into a loan agreement with DBW in relation to the MIM investment that requires DBW to provide quarterly reports on the project company's performance, the performance of the investment and any current key risks. I think that that is important in terms of transparency and good management of the projects as well. Thank you. 

Thank you, Minister, for that statement. Let's begin with some positives and areas that we would agree on. I'm pleased to hear you saying that your strict approach to the use of MIM remains unchanged and that conventional capital should be used first, then that you would use limited borrowing powers—'limited' being the operative word—and then, only then, look at the possibility of using MIM. And in that context, I think MIM does have its attractions. It has its drawbacks also, though. It is not PFI. We're very pleased that Wales used PFI less, but it is ultimately another partnership that allows profit on some things that we shouldn't be needing companies to profit from. I'm sure Mike Hedges, when he makes his contribution to the debate later, will be saying some similar things. 

We heard the Minister saying that the successful completion of the groundbreaking MIM procurement demonstration on the Heads of the Valleys road shows what Wales can achieve in difficult times when we address challenges with creativity. Well, no; what it does is it shows what Welsh Government can do when it has no choice, when the UK Treasury decides what can be spent, what can be borrowed and when. Welsh Government is out of step—or Wales, I should say, is out of step—with what's happening in most other countries in going down this MIM route, and I'm sure the Minister would have to agree that, for example, an independent Wales would be able to finance through more conventional means, through borrowing at record low levels. So that's what we should be celebrating, but in the context that we are in, this is a slightly better option than PFI that can be useful. 

Transparency, though, is a word that the Minister used. Heads of the Valleys—yes, we absolutely need to have robustness in that road across the Heads of the Valleys. I'm told it will cost about £550 million, but for the sake of transparency, can we just have a figure from the Minister today as to how much we will actually pay from Welsh Government coffers over the decades for that project?

Moving on to schools, I'm deeply uncomfortable about Wales being a nation that is unable to finance new schools through conventional means. I'm sure Meridiam is a fine company with a global record, as it does, but to be working with an international company on the delivery of schools here in Wales is something, as I say, that I'm uncomfortable about. Surely this is something that should be able to happen from conventional borrowing, except we're not allowed to, of course. It should be able to happen from current budgets, too. But, again, on transparency, will the Minister provide a link to where the final agreement entered into with Meridiam as part of the new WEPCo vehicle may be found? That's a question asked by Adam Price earlier this month. The answer from the Minister for Education:

'The agreement was signed on 30 September 2020. As it contains commercially sensitive information we would not look to publish the document.'

Where is the transparency on the agreements that we are entering into?

And on another project that I'm very, very supportive of, a new Velindre hospital, I am very, very aware of concerns over whether the right clinical model is being pursued for the delivery of a new hospital. Can I ask, whilst that investigation is going on into the appropriateness of the choice of that clinical model, whether the finance Minister has looked at ensuring that decisions on the clinical model are not clouded, not influenced in any way, by which would be the best commercial deal or the best property deal for the partners involved—partners that are looking to make a profit out of this, otherwise they wouldn't be a part of it? Thank you.

Well, I'm grateful to Rhun ap Iorwerth for raising those issues, and we've talked several times before about the Welsh Government's approach to investment in public infrastructure and maximising the publicly available sources of capital funding and the least expensive forms of capital before we use these more complex and more expensive forms of investment. And I know this is something that the Finance Committee has signalled its approval of in terms of a way forward in the past.

Rhun is correct that MIM is not PFI, and I think that's really important to recognise. It incorporates the best of the Scottish non-profit distributing model, such as optimum-risk allocation, whole-of-life costings and performance-based payments, whilst also ensuring that the new investment is classified to the private sector. And private partners, as I've said to Nick Ramsay, will be obligated to help the Government deliver on our objectives in the well-being of future generations Act. So, they'll need to deliver those stretching community benefits, and there will be penalties for the non-delivery of those benefits. They'll also need to commit to the Welsh Government's ethical employment code, and I think that that is very important as well, as well as building with long-term sustainability and environmental efficiency in mind. And MIM differs from the traditional PFI projects also because it won't be used to finance soft services, such as cleaning and catering, which, obviously, were things which led to expensive and inflexible contracts in the historic PFI model, nor will it be used for the financing of capital equipment.

It's also different because the Welsh Government will invest a small amount of risk capital in each scheme, ensuring then that the public sector will participate in any return on investment. And also different again because the public-sector-appointed director will manage the public shareholdings and promote the public interest more widely on those discussions on the board. And the post of a public-sector-appointed director ensures that there's transparency about costs and the performance of private partners as well. But MIM, I think, differs most profoundly and clearly in its active promotion of well-being, value for money and transparency, and it's really instructive, I think, that the United Nations, which has its own agenda for the promotion of people-first PPPs, has included the MIM in its compendium of such schemes, promoting what we're doing here in Wales across the world.

Rhun also talked about profits. Well, of course, there's always an element of profit when we procure infrastructure, however that infrastructure is procured. However, the precise amount of profit will be determined by the performance of the company over the life of the contract. We've run robust procurement processes, and contracts have been awarded to the most advantageous tenders. Furthermore, appropriate allocation of risk, alongside good contract management, will ensure that any profit generated is reasonable. And we're also investing, as I've mentioned, that proportion of risk capital in those MIM schemes to ensure that we can also benefit, on equal terms with private equity investors, on any returns on those investments.

Rhun also asked for some figures, in terms of how much. So, in terms of the A465 scheme, the construction cost value of the A465 scheme is £550 million, excluding non-recoverable VAT. The annual service payment will be in the region of £38 million a year at current prices, excluding that non-recoverable VAT, for 30 years following construction. And this payment is linked to performance, with deductions levied should Future Valleys fail to meet the contract performance requirements. And, of course, the Development Bank of Wales has invested 15 per cent of the required risk capital on equal terms with the other investors, and in due course then will earn a commensurate return, which will then be, of course, reinvested in public services here in Wales.

Can I also thank the Minister for her statement? Can I just explain to Rhun ap Iorwerth that borrowing rates are low in Britain, they're not low in the rest of the world? In Armenia, it's over 6 per cent; in Egypt, it's over 10 per cent; in Argentina, it's over 30 per cent. So, although we have low interest rates, it's not low all over the world, because the British economy is considered to be quite stable.

Can I start off by saying I'm sceptical of the mutual investment model, especially its revenue cost down the line? I have some general comments on MIM. To quote from a private briefing, the only difference financially between MIM and PFI is there's no facilities management portion of the contract. Companies will borrow at best at 1.5 per cent to 2 per cent above the base rate. Some will borrow at 5 per cent or more above base rate. They will also add a profit, I would suggest, of 5 per cent or 10 per cent of the minimum required. This is adding cost. While the aim is to pass risk onto the private sector, what will happen is that a single-purpose minimum investment company will be formed, and, if there is a problem with the contract, it will liquidate it and the expenditure incurred for the work done will be claimed by the liquidator. The community benefits are factored into the cost. We're actually paying for them—or the Welsh Government are paying for them. The question I've got is: when will the Wales Audit Office be able to look at these contracts and report back?   

I thank Mike Hedges for raising those issues. And of course I'm familiar with Mike's scepticism over the MIM approach, and I think it is helpful to have that level of challenge, because we've had some excellent discussions in Finance Committee particularly, but also several times here in the Senedd, when we've explored the MIM model.

There was a particular question regarding borrowing and why Welsh Government—not a question, really; a comment as to borrowing. And some people have asked, 'Well, why doesn't Welsh Government borrow to deliver the A465 or more of these school schemes?' Well, as Mike's aware, the borrowing limit is very modest, only £150 million a year, and, obviously, we've already got really ambitious investment plans: housing, health, other parts of our school agenda, the metro, responding to the Burns report, which is due next week as well. So, borrowing really is necessary to ensure that we can deliver on these, and this is one of the reasons I'm grateful for the cross-party support and the support of the Finance Committee in terms of our efforts to extend or expand our borrowing capability and get that agreement from the UK Government.

Just a couple of words on the cost of the projects from the school side—so, we've committed to delivering new schools and colleges with a capital value of up to £500 million through the Welsh education partnership. Total annual service payment for that won't yet be known until the projects are in operation, and we do expect those projects to be delivered over the next seven years. So, when we've agreed our contracts with Meridian, what we haven't done is entered into a contract for one partner to deliver the project, but one partner to assemble the project. So, there will be the opportunity then for local contractors to bid for those projects. We'll be advertising on Sell2Wales, and of course we want local businesses to come together as partners and as groups in which to bid for those projects if they are too small players to bid on their own for those. I think that's important as well.

And the Development Bank of Wales will be a shareholder in each of the project companies established for the schools and colleges project. And we intend to—well, we have provided a very modest working capital facility to establish WEPCo, equating to 20 per cent of the latter's working capital needs. So, that's putting the situation on the record as it is at the moment, but of course there'll be opportunities in due course, once things have progressed further, for that in-depth level of scrutiny.

Thank you very much, Minister.