Financing PFI projects in the credit crisis and the Treasury's response: ninth report of session 2010–11

Financing PFI projects in the credit crisis and the Treasury's response: ninth report of session 2010–11
Document type
Report
Corporate author(s)
Great Britain. Parliament. House of Commons. Committee of Public Accounts
Publisher
TSO
Date of publication
9 December 2010
Series
Parliamentary Papers. Session 2010-2011; HC553
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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This report examines the Treasury response to financing Private Finance Initiative (PFI) projects in the credit crisis, on the basis of a Report by the Comptroller and Auditor General. The 2008 credit crisis had an enormous impact on the Government’s public infrastructure programme. Severe restrictions on bank lending at that time meant no sizeable PFI contracts could be let. This affected the viability of a large number of infrastructure projects, including school and road building schemes, with a total investment value of over £13 billion. The Treasury’s response was to make project finance available by lending public money on the same terms as the banks. This approach reflected a fear that doing nothing would slow the flow of new PFI contracts, jeopardising the economic stimulus that would be generated by new infrastructure. However the Treasury did not put pressure on government-supported banks to either make lending available or reduce the extent of increased financing costs. Furthermore Treasury did not require individual projects to submit detailed re-evaluations to assess whether contracts were still value for money. The impact of the bank crisis on projects will continue to be felt over the next 30 years, as financing costs are locked in for the life of each project (both construction and operation phases). Higher financing costs will persist throughout the operating period, even though the project operation phase normally represents a lower risk for lenders. The Treasury needs to be better informed about the active market in the sale of PFI shares. At present, unlike debt refinancing, the Treasury does not monitor the extent of gains to private investors from selling their shares. If gains are excessive, this may indicate an overpriced contract in the first place, raising concerns about value for money for taxpayers.

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