Bond bears private strings

The rush by universities to the door of the money markets, which began in earnest last week when Lancaster University became the first higher education institution to launch a bond scheme, could lead to the privatising of universities, according to a leading industrialist, writes Simon Targett.

Oliver Whitehead, chief executive of constructors Alfred McAlpine, told a conference of executives and university administrators last week that it was a pipe dream to think that the private sector would come to the rescue of British higher education merely by making hands-off financial loans to cash-starved universities.

He said that if companies other than financial investors are to be involved in university development, they would probably want the incentive of providing not just the capital but also the expertise for constructing, managing and operating the buildings.

Mr Whitehead told the conference, run by the Committee of Vice Chancellors and Principals, and the Higher Education Funding Council, that in the long run "this may mean that universities are run on a purely private basis".

Various schemes have been proposed to allow universities an equity share in academic developments, including DBFO (design, build, finance and operate) and BOO (or build, own and operate).

A compromise scheme is BOT (build, own and transfer) where the ownership of the building is eventually returned to the university. These schemes are chiefly applicable where the buildings can generate a direct income flow, such as catering and sports facilities, student residences, conference facilities and science parks.

Stephen Syrett, chief executive of European Capital, the merchant bank which has won the backing of the Committee of Vice Chancellors and Principals for developing a Pounds 100 million bond scheme involving a consortium of universities, said there also needs to be an alternative approach "based on the continuing strength of higher education's cash flow rather than the nature of its profit-making".

Mr Syrett said that the financial predicament of universities represented "an opportunity not a threat". He said that the sector is an untapped area with an established record, that it is expected to grow, that it enjoys political backing which will not fluctuate with a change of government, and that it is monitored by a strong regulatory regime.

He also said there was a huge need for investment, citing a recent survey which showed that nearly 100 institutions forecast borrowing a total of Pounds 800 million by 1998.

This investment need was endorsed by Peter Knight, vice chancellor of the University of Central England. He made what he called "a conservative calculation", that universities would need to build an extra 130,000 bed spaces over the next five years, borrowing some Pounds 3 million a year.

To bring academics and business together, HEFCE has set up two registers - one for education projects for which private sector involvement is sought, and one for private sector organisations who wish to do business with universities. But Jane Henderson, HEFCE's finance director, said that "the council will not be acting as marriage brokers".

*Lord James Douglas-Hamilton, Scottish Office minister for education, has urged the business community to explore the "still expanding" higher education marketplace more intensively, Olga Wojtas writes.

Speaking at the Scottish Higher Education Funding Council's private finance initiative conference last Friday, Lord James said: "I believe that the higher education sector is ripe for the PFI because of the relevant experience which the higher education institutions have gained over recent years from working in partnership with commercial organisations."

He said that Scotland's higher education sector was quite small by international standards, but it had a remarkable quality and breadth of tradition. "Higher education is crucial for the well-being of any modern economy. The Government wants to maintain numbers and standards, but higher education is expensive. It will have to compete for its share within the tight constraints on overall public expenditure for the foreseeable future."

He added: "It is part of our efforts to build responsive, efficient public services fit for 21st century Britain. We want to make use of private sector managerial skills to deliver high quality service at the minimum cost to the taxpayer."