If PFI is no more, who takes project risks?
The Chancellor’s Spring Statement confirms PFI will not be reinvented for major projects, but there is a question over where the risk will sit, says John Tibbitts.
Philip Hammond’s announcement of a consultation on infrastructure finance in his Spring Statement is certainly needed with the loss of access to the European Investment Bank after Brexit and the demise of PFI.
Although labeled as a consultation, you could read this as an exercise in refining and reaffirming a decision to set up a UK Infrastructure Bank that has already largely been taken.
Any investment in infrastructure has to be welcomed but it will either have to provide additional investment over and above what the existing market can deliver or finance for projects that would not otherwise be fundable.
Anyone hoping to see a reinvented “PFI3” will be disappointed. The consultation paper confirms that the Government will not be procuring off-balance sheet projects using a design, build, finance and maintain/operate contracting structure, where the taxpayer directly pays for the project.
The paper is more focused on major infrastructure projects, which suggests funding for the kind of projects that made up the bulk of old-style PFI schemes is likely to be a relatively small part of the new institution’s portfolio.
There remains a question over who will be taking the project risks. Financial institutions don’t and won’t take delivery risk so is it expected that the hard-pressed construction industry will take the strain? There may be some takers – there always will be – but overall the industry is likely to be less enthusiastic about underwriting delivery of major projects than it was in the past.
This consultation and subsequent work in setting up a new institution will take time to complete and there has to be a question mark over whether the new institution will be delivered before there is a change in policy and approach from either a new Prime Minister or Government with different priorities.
It is something that is sorely needed so we should all wish it well.
John Tibbitts is a non-executive director and consultant, specialising in development and project finance.