THE £8.7million redevelopment of Townlands Hospital in Henley has been thrown into doubt due to problems with the funding.
Insurance giant Aviva is stalling on a £7million loan towards the cost of the new “health campus”.
The company fears its investment could be devalued by the Government’s decision to abolish primary care trusts from March 31. This move means that the loan, which would be repaid by developer Amber Solutions for Care with a 25-year lease of the buildings to the Oxfordshire trust, will not be guaranteed by the Treasury.
Previously, investors would have a guarantee that if a trust went bust, the liabilities would be covered by government. From April 1, the Oxfordshire trust’s assets will transfer to NHS Property Services, a company wholly owned by the Department of Health.
However, Aviva believes that its investment could be downgraded because the existing NHS covenant allows it to lend the money at favourable rates.
Negotiations between Aviva and the DoH have been taking place for a year without an agreement being reached.
Planning permission for the project was granted by South Oxfordshire District Council in November but the Oxfordshire NHS Primary Care Trust trust says it has been unable to bring the project to its “financial close”.
The Standard has seen an email from Riana Relihan, the trust’s project director, saying that “the main risk to the scheme is the funding issue”.
She said: “The changes in the trust estates landscape has raised potential issue on covenant strength on the NHS leases for developer funders. This is a national issue for all projects under procurement in the community care market.”
Ms Relihan said she hoped to make progress “quickly” and maintain the “affordability envelope” on the project.
Once the issue was resolved, she estimated it would take up to two months before the final contract was signed.
The email was sent in late December but the trust has said the current timetable has been impacted and is being revised.
The project has now suffered six separate hold-ups, causing a delay of almost three years compared with the original 2011 completion date.
Building work was supposed to start this month with the new three-storey hospital due to open in 2014.
Henley MP John Howell has written to Health Secretary Jeremy Hunt asking him to intervene in the “continuing disagreement” and, if necessary, to give a specific guarantee on Townlands.
He says Aviva is “trying to play hard ball” with the DoH.
“It is trying to hold a gun to the department’s head to renegotiate the contracts,” said Mr Howell.
“We are now in the situation where we have the best chance in 25 years to secure the funding of Townlands and it is a shame that it is being held up.
“I had hoped that we would by now be in a position where the deal could proceed before the winding-up of the current primary care trust at the end of March.
“Sadly, there now appears to be a significant risk that this will not be possible.
“I am aware that Aviva is taking the position that the covenant strength (credit rating) offered by the DoH is not strong enough under the new health architecture to provide sufficient cover for the project.
“I am equally aware that the department believes the new architecture offers sufficient covenant strength. Nevertheless, while the two sides remain at loggerheads over the issue the project slips further and further backwards.
“Townlands is a project which has undergone much consultation and has the widest possible levels of support and offers a unique opportunity to develop a true health and social care campus.”
Oxfordshire County Council has set aside almost £7.8million from its capital investment programme for the construction of the new 64-bed care home on the Townlands site. There will also be 44 new “key worker” homes.
Henley town councillor Ian Reissmann, who chairs the Townlands Steering Group, said he hoped the problem would only cause a delay and not be “a contract show- stopper”.
A trust spokeswoman confirmed that a “funding matter has arisen”, adding: “The issue has impacted on the project programme, which is under review.”
Aviva is one of the biggest lenders to NHS infrastructure projects.
A company spokeswoman for Aviva said: “An initial loan application of £7million was provisionally approved by Aviva Commercial Finance for this project with Oxfordshire Primary Care Trust as the tenant.
“We were able to offer such a significant proportion of the project cost on competitive terms due to the covenant strength of primary care trusts.
“As they will be abolished from April 1, we are currently in amicable discussions with the Department of Health to assess whether the successor body will offer an equivalent covenant so that we can confirm our terms for this loan.
“We have a strong desire to be able to continue lending in this market and there is no threat to withdraw from lending on primary care schemes or to leverage the department as alleged.
“However, as a responsible lender, we have a duty to our annuity customers to ensure we have appropriately assessed the risks of the loans we are writing and to ensure that our terms reflect that risk.”
The first delay to the project happened in October 2009 and was caused by the trust initiating planning talks with the district council too late.
Originally it was hoped that a contract would be awarded in April 2010 and building would start that June. This was delayed until at least the autumn.
In November 2009 came a second major delay when health chiefs added a year to the project timeline, predicting that a contract would be awarded in December 2011.
In May 2010, health bosses were forced to scrap the project’s entire procurement plan because of a risk of legal challenges, causing a delay of up to another year.
The fourth hold-up came in the November, when health chiefs announced a three-month delay in awarding the final tenders.
In January 2011, then project leader Richard Darch was jeered at a public meeting when he claimed that the hospital would be completed in 2013.
The fifth delay came in June 2011 when the project was held up by another four months when the trust was forced to adopt a new timetable by the Government’s reorganisation of the health service.
The changes meant that the trust had to obtain formal approval from the NHS South Central Strategic Health Authority with a presentation alone taking two months to prepare.
A DoH spokeswoman said: “The funder of the Townlands Hospital scheme has raised a number of issues and we are currently in discussions with them to address these.”