NHS North of England this week said it hoped to see final government approvals secured by the end of this month for a £425m rebuild of the Royal Liverpool Hospital, funded largely through the private finance initiative.

The strategic health authority cluster approved the appointment business case for the scheme on 13 September. It now needs approvals from the Department of Health and the Treasury to go ahead.

An NHS North of England spokeswoman told HSJ: “We’re hoping all approvals can be secured by the end of September.”

A spokeswoman for Royal Liverpool and Broadgreen University Hospitals Trust said the trust expected final approvals within “the next few weeks”, and would then be in a position to announce the chosen PFI bidder and the final design of the new hospital.

Two bidders have been shortlisted for the PFI contract: Carillion and Horizon.

According to an NHS North of England board paper, the scheme will require £293m of the capital costs to be raised by the PFI contractor and £117m by the trust itself. The trust’s annual “unitary payments” for the PFI would begin at £32.5m, but would be index linked to inflation, meaning that by 2018-19 the estimated payment would be £34.9m.

However, the paper adds that there is the “possibility” of an injection of £100m of public capital into the scheme from the DH. This would reduce the amount of private finance required and, if confirmed, could reduce the trust’s annual payments by “over £5m”, it notes.

The paper states that the “need to re-provide the Royal Liverpool Hospital estate is profound”. There are “serious safety and business continuity risks with the existing building, which although being actively managed and mitigated remain unsustainable in the medium term”.

However, it also highlights the “financial challenges created” by the additional savings the trust will need to make to fund its upfront investment and annual payments on the scheme, on top of the “significant efficiency savings the trust needs to make in the context of its [foundation trust] application” and the NHS’s £20bn savings drive.

The paper also shows that the trust’s appointment business case forecasts a significant improvement in its trading performance over the next five years, with its expected surplus increasing year-on-year from £5.5m in 2011-12 to a peak of £29.2m in 2016-17. This “improvement in the financial position is fundamental to the affordability of the PFI and is a combination of case mix income growth and cost improvement plans at a slightly higher level than the national efficiency requirement”, it states.

The trust’s business case models a “downside scenario” in which a combination of factors - including inflation, readmissions penalties, and missed savings targets - could wipe out the majority of its planned surpluses for the years up to 2014-15, and push it into deficit for the following five.

It also outlines a “mitigation strategy” that would offset the effect of those factors and push the trust back into surplus for every year to 2019-20.

The proposed mitigation strategy suggests the trust could find an extra £160m over the period through strategies including the release of reserves, reductions in sickness payments, estate rationalisation, a pay award review, and collaboration with other trusts.