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PFI reinvigorated in 2009
The previous Government was right to introduce a new Finance Unit at the Treasury to reinvigorate PFI last year, according to a report by the National Audit Office, which also warned that there was “no guarantee” that finance in current PFI schemes will remain value for money.
According to the NAO’s head Amyas Morse, “By introducing an Infrastructure Finance Unit, the Treasury helped reactivate the market and prevent the stalling of many government projects.”
The report concluded that during 2009, the cost of finance built into the PFI programmes at that time was “value for money, but there is no guarantee that it will remain that way.” It added: “Now that the market is providing finance again, a project by project review should be carried out using stricter criteria, to establish the most appropriate funding methods."
The Infrastructure Financing Unit was set up by the Treasury helped to bolster the lending market for private finance projects, which was putting government PFI programmes in doubt as a result of the credit crisis. The Treasury “should not presume that continuing the use of private finance at current rates will be value for money.”
The Unit helped to finalise a large waste treatment and power generation project, said the NAO. Subsequently, 35 projects, including the contract to widen and maintain the M25, were signed “without any further public lending.”
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, said the NAO. Its analysis suggests that higher financing costs increased the annual charge of PFI projects by six to seven per cent.
The NAO report found that reconsidering business cases - which might result in projects being postponed or discontinued - might have put policy objectives to give a boost to the economy at risk. It “would not have been a reasonable yardstick to assess the protection of value for money.”