Financing PFI projects in the credit crisis and the Treasury's response PDF Download

Author: Great Britain: Parliament: House of Commons: Committee of Public Accounts
Publisher: The Stationery Office
ISBN: 9780215555502
Category : Business & Economics
Languages : en
Pages : 48

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Book Description
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 Private Finance Initiative (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. However the Treasury did not put pressure on government-supported banks to either make lending available or reduce the extent of increased financing costs. Overall, bank financing costs increased by 20-33 per cent compared to bank charges before the credit crisis. This added £1 billion to the contract price, payable over 30 years, for the 35 projects financed in 2009. Other alternatives to the high cost bank finance were not properly explored during the credit crisis. Greater use of Treasury loans, or direct grant funding, could have put pressure on banks to lower their charges. Neither did the Treasury adequately explore how lower cost finance sources such as life insurance and pension funds could be encouraged to invest more in PFI projects. The Treasury also could have made more use of funding from the European Investment Bank. The appropriate mix of financing sources for future project contracts, including public and private finance, is an issue that needs serious reconsideration.

Author: Great Britain: National Audit Office
Publisher: The Stationery Office
ISBN: 9780102965469
Category : Political Science
Languages : en
Pages : 40

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Book Description
By setting up an Infrastructure Financing Unit, HM Treasury helped reactivate the lending market for private finance projects which was putting government PFI programmes in doubt as a result of the credit crisis. While the extra finance costs for projects in 2009 were value for money in the short term to stimulate the economy, the Treasury should not presume that continuing the use of private finance at current rates will be value for money. In line with policy on acting to stimulate the economy, the Treasury and other government departments gave priority to closing deals at the prevailing market rates, even if this meant the public sector paying more, and the banks carrying less risk. Analysis by the NAO suggests that higher financing costs increased the annual charge of PFI projects by six to seven per cent and that between £500 million to £1 billion of higher cost has been built in over 30 years, partly offset by an increased public sector share of refinancing gains. The NAO also considered whether reconsidering business cases would have improved value for money. The NAO found that this might have put policy objectives to give a boost to the economy at risk and would not have been a reasonable yardstick to assess the protection of value for money. The NAO recommends that there now be a thorough project by project review of the forward programme to apply more exacting and narrower criteria than applied to projects at the height of the crisis

Author: Marcus C. Jefferies
Publisher: Routledge
ISBN: 1317635027
Category : Technology & Engineering
Languages : en
Pages : 375

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Book Description
The last three decades have seen the evolution of Public–Private Partnerships (PPPs) and Relationship Contracting (RC) as alternative procurement approaches to traditional methods of delivering public infrastructure. The potential for growth in these new forms of procurement has led to an on-going debate on the nature of requirements, particularly in terms of policy development, encouraging private investment and value for money. A key argument for Governments to procure projects using PPPs and RC is that the process delivers better value for all the stakeholders, including the community and asset end-users. This wide-ranging study of such crucial procurement issues includes international historical context, collaboration and risk management, with a focus on sustainable procurement approaches. The international significance of PPPs and RC procurement is reinforced with case study examples from the UK, Europe, North America, South Africa and the Asia-Pacific. It features cutting-edge research from around the world on subjects such as: Reviews and reflection of the PPP approach Project Alliancing Implementation of RC in developing countries Changes in procurement policy Value for money, collaboration and stakeholder involvement Growth and emergence of PPPs in Asia Risk management Including contributions from some of the world's most prominent academics and practitioners in this field, it is a crucial guide to the strategic choices governments now face for the provision of infrastructure, between using ‘public’ or ‘private’ mechanisms, or a combination of the two.

Author: Great Britain: National Audit Office
Publisher: The Stationery Office
ISBN: 9780102969672
Category : Business & Economics
Languages : en
Pages : 36

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Book Description
Lessons from the experience of using PFI can be applied to improve other forms of procurement and help Government achieve its aim of securing annual infrastructure delivery cost savings of £2 billion to £3 billion. To secure the best value for money from all types of procurement, the public sector needs to develop skills the NAO has identified. These are collecting better data to inform decision-making; ensuring projects have the right skills; establishing effective arrangements to test, challenge and, if necessary, stop projects; and using commercial awareness to obtain better deals. The case for using private finance in public procurement needs to be challenged more. Also, privately financed projects will often still be off balance-sheet which may continue to act as an incentive to use PFI. There has not been a systematic value for money evaluation of operational PFI projects by departments. So there is insufficient data to demonstrate whether the use of private finance has led to better or worse value for money than other forms of procurement. The Treasury and departments should identify alternative methods for delivering infrastructure and related facilities services to maximise value for money for government. The NAO welcomes the current plans of the Treasury and Cabinet Office to strengthen project assurance. The report highlights the need for independent challenge capable of stopping projects which do not give the prospect of value for money. This is particularly important as there is still a shortage of the skills needed to manage and oversee complex major projects.

Author: Great Britain: National Audit Office
Publisher: The Stationery Office
ISBN: 9780102980486
Category : Business & Economics
Languages : en
Pages : 44

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Book Description
Large-scale infrastructure projects, in sectors such as energy, rail, roads, water, waste, flood defences and digital communications, pose significant challenges. With limited funds available, the government is looking to private companies to wholly own and finance around 64 per cent of the £310 billion expected cost by 2015, with the burden of funding likely to shift towards the public as consumers rather than taxpayers. The first of the risks to achieving value for money is that forecasters might get wrong the need for infrastructure in the long term. Secondly, uncertainty over government policy might lead to deferment or abandonment of projects in the UK for opportunities elsewhere. Thirdly, there is the possibility of a failure to take into account the cumulative impact on consumers. Increasing the burden on consumers may increase the risk of financial hardship, or the need for unplanned taxpayer support. The full impact of spending on economic infrastructure in the years ahead is unclear. While there is information on individual sectors, no overall assessment has been undertaken by government. Taxpayers may be exposed to substantial losses as a result of government guarantees to bear some project risks should they materialize. The NAO has made a series of recommendations to help ensure value for money is achieved. It calls for the Treasury to work with departments and regulators to provide greater clarity for consumers regarding the financial impact of planned infrastructure investment. Where there are limits on affordability and availability of finance, the NAO notes that the Treasury and departments may need to refine their prioritization of infrastructure programmes and projects.

Author: Stéphane Saussier
Publisher: Springer
ISBN: 3319680501
Category : Business & Economics
Languages : en
Pages : 241

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Book Description
This book investigates the economic decisions behind the implementation of public-private partnerships (PPPs). The first part of the book discusses different forms of public procurement contracts, in particular in France and the UK, and provides an economic analysis of the potential advantages and pitfalls of public-private partnerships. This exploration of PPPs’ efficiency also includes an examination of the financing conditions of public procurements, as well as regulatory requirements. By reviewing empirical studies on PPPs, the second part of the book compares their advantages over purely public solutions and offers practical guidance on their implementation. Practitioners will also learn best practices on how to involve stakeholders in calls for bids.

Author: Carsten Greve
Publisher: Routledge
ISBN: 1136264574
Category : Business & Economics
Languages : en
Pages : 241

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Book Description
The global financial crisis hit the world in a remarkable way in late 2008. Many governments and private sector organizations, who had considered Public-Private Partnerships (PPPs) to be their future, were forced to rethink their strategy in the wake of the crisis, as a lot of the available private funding upon which PPPs relied, was suddenly no longer available to the same extent. At the same time, governments and international organizations, like the European Union, were striving to make closer partnerships between the public sector and the private sector economy a hallmark for future policy initiatives. This book examines PPPs in the context of turbulent times following the global financial crisis (GFC). PPPs can come in many forms, and the book sets out to distinguish between the many alternative views of partnerships; a project, a policy, a symbol of the role of the private sector in a mixed economy, or a governance tool - all within a particular cultural and historical context. This book is about rethinking PPPs in the wake of the financial crisis and aims to give a clearer picture of the kind of conceptual frameworks that researchers might employ to now study PPPs. The crisis took much of the glamour out of PPPs, but theoretical advances have been made by researchers in a number of areas and this book examines selected new research approaches to the study of PPPs.

Author: Great Britain: Parliament: House of Commons: Treasury Committee
Publisher: The Stationery Office
ISBN: 9780215561206
Category : Business & Economics
Languages : en
Pages : 120

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Book Description
The Treasury Committee concludes that Private Finance Initiative (PFI) funding for new infrastructure, such as schools and hospitals, does not provide taxpayers with good value for money and stricter criteria should be introduced to govern its use. Higher borrowing costs since the credit crisis mean that PFI is now an extremely inefficient method of financing projects. Poor investment decisions may continue to be encouraged across the public sector, however, because PFI allows Government departments and public bodies to make big capital investments without committing large sums up front. There is no convincing evidence that savings and efficiencies during the lifetime of PFI projects offset the higher cost of finance. The current Value for Money appraisal system may be biased to favour PFIs and there are problems with the way costs and benefits for such projects are currently calculated. Investment could be increased in the long run if government capital investment were used instead of PFI. Paying off a PFI debt of £1bn may cost taxpayers the same as paying off a direct government debt of £1.7bn. Recommendations include: the Treasury should consider scoring most PFIs in departmental budgets in the same way as direct capital expenditure; the Treasury should discuss with the OBR the treatment of PFI to ensure that PFI cannot be used to 'game' the fiscal rules; the Value for Money assessment process should be subjected to scrutiny by the NAO; the Treasury should review the way in which risk transfer is identified.

Author: Nikiforos Meletiadis
Publisher: Routledge
ISBN: 0429821808
Category : Business & Economics
Languages : en
Pages : 213

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Book Description
Annually, the government commits significant expenditure to a type of public contracts which are known as Public-Private Partnerships (PPPs) or the Private Finance Initiative (PFI). These contracts bind the public purse for decades in sectors such as Health, Defence and Detention, and involve the assignment of a significant role to the private sector in the provision of public services. This book explores the controversial subject of the public accountability of these contracts, and the corresponding large sums of public money involved. It explains how public accountability works for PPPs and the PFI, and it argues that it should be provided as part of the Economic Constitution. Drawing comparative understandings from the UK and the USA constitutional legal traditions, the book investigates public accountability from the perspective of the Economic Constitution, focusing on three accountability criteria - legal, accounting and administrative. In doing so, it provides an analysis which informs both from the perspective of academic research and from that of legal and consulting practice.

Author: International Transport Forum
Publisher: OECD Publishing
ISBN: 9282103951
Category :
Languages : en
Pages : 231

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Book Description
The report examines the nature of risks and uncertainty associated with different types of public-private partnership projects and the practical consequences of transferring risks to private partners.