Tuesday, February 24, 2009

PFI needs £4bn of help from government funds

The government is expected to provide bridging loans running to a total of ВЈ4bn to keep planned PFI projects on track.

The Financial Times reports on a PFI tally of 800 deals having been signed off to date already, with a capital value of ВЈ68bn but with public sector commitments to pay a total that will rise to ВЈ215bn over the years through to 2032 as a result of capital, maintenance and service provision.

But of late the flow has dried up as a result of funding issues.

“Today the party might not be over for the private finance initiative,” says the FT. “But it is far less champagne-fuelled than it was.

“By the end of last year, the bond market to finance PFI deals had vanished; bank funding, likewise had dried up. Since December, some banks have returned to the market but there are fewer than there used to be.”


PFI needs £4bn of help from government funds


Hence the pressure on the government to step in.

Philip Hammond, treasury spokesman for the Conservatives says it is “ridiculous to take the “private finance” out of PFI as “you haven’t got much left”.

Convolutions in the finance market have already had the effect of transferring the private sector’s risk back onto taxpayers as the biggest lenders to PFI in recent times have been the Bank of Scotland, Royal Bank of Scotland and Lloyds TSB – and all three have crawled to government to be saved by taxpayers taking a large stake-holding in them.

John Tizard, director of the centre for public service partnerships at Birmingham University, thinks the outlook for public infrastructure is grim no matter which way the coin falls – be the call for either private or public funding.

A source in the road sector said that politically the M25 widening PFI project has jumped up the agenda and will be kept moving at all costs.

“The financial model is already dramatically different to what was bid by the three final bidders because of the strong desire to get it going,” he said. “The delay has become a political embarrassment.

“Not only that, but the scope has changed, the work package is very different – some widening is no longer required as they have switched to ATM as the alternative answer.”

Government’s proposal for banks comes today
CBI construction chiefs back council house building plan
GM, Chrysler situations smack of bankruptcy