Credit crunch slows number of PFI deals
The credit crunch contributed heavily to just 34 PFI deals being signed last year, after at least 60 deals were signed every year over the past decade, according to Public Private Finance magazine. Hospital deals fell to just seven last year, against 20 in 2007, while just three waste management deals were signed.
The economic conditions also mean big deals such as the £4.5bn M25 widening, the M80 in Scotland and Britain’s biggest waste management project in Greater Manchester are still struggling to raise the money needed, with some practitioners arguing that further government guarantees, or public sector funding, will be necessary.
Analysis of last year’s deals comes as the National Audit Office warned that both central and local government faced potentially massive European Union fines for failing to reduce landfill if a string of PFI waste management schemes were not signed soon.
Fines “could run into several hundred millions of pounds”, the NAO said. Projects currently in procurement “face difficulties in obtaining private finance”, it said, adding some schemes will have to be financed more conventionally.
The Greater Manchester Waste Disposal Authority has already had to agree to find an additional £70m from its own borrowing in order to ensure its £600m waste scheme is fully funded. There are concerns that additional public sector cash may also be needed to finalise the M25 deal.
One leading practitioner said that raising private finance remained “a nightmare” with banks still reluctant to lend.
David Metter, chairman of the PPP Forum, the trade body for the industry, said some additional Treasury guarantee might be needed to get funds flowing into infrastructure projects that the government wanted to see built to combat the downturn.
“The risk to the government of doing that would be small,” he said. “In effect, it would be guaranteeing its own payments for the service charges, or unitary payments that it makes on projects.”
The Treasury declined to discuss the idea of further public sector support, arguing it would take time for the measures it had already taken to take effect.