Building on PFI

Since its introduction over ten years ago, there is no doubt that the Private Finance Initiative (PFI) has helped to deliver some real benefits for the region and the pipeline remains as busy as ever.

However, since the government announced the adoption of International Financial Reporting Standards (IFRS) from 2009 – 2010 onwards, there has been much speculation about what this means for PFI. Will it remove the current accounting incentive that exists for such schemes or could it create opportunities to improve PFI delivery?

Some believe that the introduction of IFRS could impact future PFI activity. Let’s hope not because the lesson of the past ten years is that the use of private finance has brought much needed rigour to the procurement of big capital projects.  National Audit Office evidence backs this showing PFI projects with a much better record of being completed on time and on budget than those bought and financed traditionally.

Accepting the fact that PFI projects must now be structured on-balance sheet, means that we can now open up the debate and consider more innovative structuring solutions that will work for both public and private sector partners. For example, one method that could be used more in the future is debt underpinning.

Debt underpinning is about getting the financing secured early in the development of a project, which has proved successful in structuring large and difficult projects. However, it is important that where alternative forms of structuring are developed that they are properly checked out and subject to robust due diligence.

The next few years are crucial for the region, particularly in view of the scale of investment required to upgrade the infrastructure. If the region is to remain attractive and competitive, it is essential that investment is directed to the most important projects across transport, hospitals, schools and affordable housing.

To secure the investment required, practitioners must now work together to find new ways to structure new forms of public private partnerships that will deliver new and lasting value for the region.

Contact details
Email: Richard Parker
Tel: +44 (0) 121 232 2455