HM TREASURY News
Release (PN 20/009) issued by COI News Distribution Service. 3 March 2009
The Chief
Secretary to the Treasury, Yvette Cooper, today announced
Government action to ensure vital PFI infrastructure projects will
go forward as planned despite the current financial market conditions.
This action will ensure that crucial and valuable public
investment will not be disrupted by problems in the financial
markets. In total, £13bn of public investment in procurement will
be safeguarded. This protection will assure the future of a broad
range of public infrastructure projects including £3.5bn of waste
treatment and environmental projects, £3.1bn of transport projects
and £2.4bn of schools projects - investment that will prepare the
country for the future recovery. It will also avoid the
significant delays which would be entailed by switching these
projects to alternative procurement approaches. These projects can
therefore go ahead swiftly and support jobs and the economy and
help prepare the country for the future recovery.
Yvette Cooper said,
"These projects will create jobs and support the economy as
well as delivering vital infrastructure that local communities
need. That's why we're determined to get them moving as
soon as possible without extra delays. Where the private markets
aren't working properly, it's right that the Government
should act to get things moving."
Around 110 PFI projects are currently in the pipeline, and PFI
projects make up typically 10 per cent of public capital spending.
PFI projects continue to be able to secure equity as private
construction companies and investors are still willing to put
money in and bear the risk of delays or cost overruns, rather than
the taxpayer. Some projects, however, are finding difficulties
obtaining sufficient debt as a result of the global credit crunch.
From today the Government will lend to those PFI projects that
cannot raise sufficient debt finance on acceptable terms, lending
alongside commercial lenders and the European Investment Bank. It
will also be able, where necessary, to provide the full amount of
senior debt required by a project. Funding will be provided from
across Government, including initially from unallocated funds and
Departmental underspends on previous projects. Equity investors
will continue to bear the primary risk in these projects and,
where available, private sector debt will continue to be provided.
The Government believes it is vital to get these infrastructure
projects under way as swiftly as possible - to support jobs and
the economy this year as well as delivering important public
services. Switching to alternative procurement methods or
conventional funding for these projects at this late stage would
incur significant additional delays or risk projects failing. For
these reasons we have decided that providing additional debt
finance is the most effective way to get construction underway
swiftly and support jobs now.
Retaining the PFI structure will mean that the private sector
will continue to bear the risk of cost over runs and delays. A
recent Ipsos MORI report on the operational benefits of PFI has
shown that contract managers are highly positive about the overall
performance of PFI projects, contract service levels are being
achieved and user satisfaction is high.
The Treasury will use professional lending skills and intends to
lend to projects only where appropriate funding is not available
from the market. It will be a temporary intervention. As with
normal commercial lending these loans will bear interest and will
be repaid over the life of the project. The Treasury envisages,
however, selling the loans it makes prior to their maturity when
favourable market conditions return.
All PFI projects in procurement (that have, to date, issued a
notice in the Official Journal of the European Union (OJEU)) will
be eligible for this finance from the Government. Future projects
intending to go to market soon will also be eligible, provided
they meet the usual value for money and affordability criteria,
and subject to Treasury approval before issuing their OJEU notice.
Notes for Editors
1. The Private Finance Initiative (PFI) is an arrangement whereby
the public sector contracts to purchase services, usually derived
from an investment in infrastructure assets, from the private
sector on a long-term basis. The private sector typically finances
its investments in the underlying assets through a combination of
equity and debt. In the majority of cases ownership returns to the
public sector after a period of years. PFI has played, and
continues to play, a small but important part in the
Government's investment plans. The Government has no in
principle preference between PFI, conventional procurement or
other approaches to procurement of infrastructure. Its policy is
that a procuring authority's choice of procurement approach
should be based on value for money considerations. Of the 630
signed PFI projects, 540 are operational.
2. A recently published survey of operational projects by
IpsosMORI indicated that PFI continues to perform well delivering
high levels of user satisfaction in vital areas of public service delivery:
* 96% of contract managers rate overall performance as
satisfactory or better of which 73% of contract managers rate
overall performance as good or very good;
* 94% of contract managers report that contract service levels
are always or almost always achieved; and
* 92% of contract managers who have carried out a user assessment
found services were being delivered to an acceptable standard.
3. Operational PFI projects and, those which have already reached
financial close, are not directly affected by the current
financial difficulties in raising new finance.
4. A total of 110 PFI projects with an estimated capital value of
£13 billion have issued an OJEU notice but have not yet reached
financial close. These include projects such as the M25 Widening,
Manchester Waste, North Bristol NHS Trust Southmead Hospital
Redevelopment, Bradford Building Schools for the Future, Victoria
Hospital Fife, North Tyneside Housing and Croydon & Lewisham Streetlighting.
5. HM Treasury will be prepared to lend to PFI projects
alongside, commercial lenders and the European Investment Bank -
or where required may act as sole lender.
6. With commercial lending and the European Investment Bank
continuing to provide financing to PFI projects, where available,
Treasury expects to contribute considerably less than 100% of the
debt requirements.
7. The exact funding requirements will be determined by market
conditions. Departments have already set aside funding for a
number of projects. Where necessary the Treasury will provide
additional resources funded from additional borrowing. An update
will be provided at the Budget.
8. The Treasury will run this facility at arm's length from
procuring authorities.
Non-media enquiries should be addressed to the Treasury
Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk
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