Downturn takes toll on PFI deals
According
to the Financial Times fewer deals were signed under the private finance initiative
last year than at any point since the PFI took off a decade ago, according to an
authoritative database.
The credit crunch contributed heavily to just 34 PFI deals being signed last year,
after at least 60 deals were signed every year over the past decade, according to
Public Private Finance magazine. Hospital deals fell to just seven last year, against
20 in 2007, while just three waste management deals were signed.
The economic conditions also mean big deals such as the £4.5bn M25 widening, the
M80 in Scotland and Britain’s biggest waste management project in Greater Manchester
are still struggling to raise the money needed, with some practitioners arguing
that further government guarantees, or public sector funding, will be necessary.
Analysis of last year’s deals comes as the National Audit Office warned on Tuesday
that both central and local government faced potentially massive European Union
fines for failing to reduce landfill if a string of PFI waste management schemes
were not signed soon.
Fines “could run into several hundred millions of pounds”, the NAO said. Projects
currently in procurement “face difficulties in obtaining private finance”, it said,
adding some schemes will have to be financed more conventionally.
The Greater Manchester Waste Disposal Authority has already had to agree to find
an additional £70m from its own borrowing in order to ensure its £600m waste scheme
is fully funded. There are concerns that additional public sector cash may also
be needed to finalise the M25 deal.
One leading practitioner said that raising private finance remained “a nightmare”
with banks still reluctant to lend.
By contrast, Tim Byles, chief executive of Partnerships for Schools, said half a
dozen or so banks were returning to the big schools market, where the projects were
smaller, although they were limiting the amount each would lend on any given project.
Deals were still being done, he said. But the Building Schools for the Future project
was still “not out of the woods yet” despite an agreement from the European Investment
Bank to put £300m into the scheme, and the insurer Norwich Union entering the schools
market for the first time.
David Metter, chairman of the PPP Forum, the trade body for the industry, said some
additional Treasury guarantee might be needed to get funds flowing into infrastructure
projects that the government wanted to see built to combat the downturn. “The risk
to the government of doing that would be small,” he said. “In effect, it would be
guaranteeing its own payments for the service charges, or unitary payments that
it makes on projects.”
The Treasury declined to discuss the idea of further public sector support, arguing
it would take time for the measures it had already taken to take effect.
But it added that it “will do what it takes” to ensure that projects late in procurement
did reach financial close.
Financial Times January 13 2009.
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