PFI is dead, long live PF2!

In an attempt to whet our appetites ahead of Wednesday’s Autumn Statement, the Government has announced that it is replacing the discredited Private Finance Initiative (PFI).

The revamped scheme, called Private Finance 2 (PF2), will follow similar lines to the original scheme, with deals still structured off the Government’s balance sheet. Private firms will also still bid for construction contracts which will then be repaid over a long period – often the life-cycle of the building.

The key changes are:

  • That the Government will keep a tally of the costs and liabilities of PF2;
  • That firms will be able to inject more equity: in the past firms could only inject equity of 10%, whereas PF2 will see that bar raised to 20-25%;
  • That the Government will take an equity stake in some projects, entitling it to a seat on the board and a share of the profits.
  • That procurement must only take 18 months, otherwise the public sector side of the funding will be withdrawn;
  • That the government will no longer be tied into service contracts, which under the original PFI scheme meant a single contractor or its subsidiary would hold a service contract for a quarter of a century.

The first contract to be signed under PF2 – the £1.75bn priority schools building programme – will see the repair of approximately 219 schools across the UK.

Whilst clearly some will welcome the end to the uncertainty over infrastructure finance, others have questioned the attractiveness of the new scheme. The original PFI had evolved to provide long-term contracts over the life-cycle of a building because that was how construction and engineering firms could get an adequate return on their investment, and it remains to be seen just how attractive these new contracts will be to investors.

For more information on PF2, investment, or the Autumn Statement, contact our Senior Consultant Jake Rigg on jake@keenecomms.com or on +44 (0)20 7839 2140.

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