Sunday, February 15, 2009

Gordon Brown set for PFI deal bailout

Prime Minister Gordon Brown is set to revive stalled PFI deals by pouring in taxpayers’ money.

Brown told MPs yesterday that where there are difficulties in private finance “I believe the Treasury will bring forward proposals”.

The Financial Times today reports: “Treasury officials declined to elaborate and said details of any scheme had yet to be decided.

“But people familiar with the debate said the Treasury remained divided over key elements of the proposals.

“One sticking point is whether the funds should be lent to the projects at prevailing market rates. Some insiders believe that the government needs to offer lower rates, or guarantees to private lenders, in order to address an вЂaffordability gap’ in some projects.”


Gordon Brown set for PFI deal bailout


There have also been calls for an alternative вЂinfrastructure fund’ which some see as being a better vehicle for tackling the problem.

A central fund would be difficult in so far as the Treasury does not have any legal authority to lend in its own name.

Changes in the eagerness for PFI lending have resulted in some players quitting the market, making it tougher to get syndicates together to get new projects afloat.

This is being felt most on big projects such as the M25 motorway widening project where as many as 20 banks need to come together and hold hands before its finances can be resolved.

To get the M25 project moving the Highways Agency has already offered to lend funds if some banks drop out.

“By promising taxpayer-backed lending, it is hoped that banks will be encouraged to stay involved in the project, reducing the likelihood that public cash will have to be provided,” says the FT.

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