Shifting the risk of PFI

By Carol Millett



Government departments are using the new accounting standards rules on PFI projects as a lever to shift increasing risk onto the private sector, leading PFI lawyers and contractors claimed this week.

The new rules published by the Accounting Standards Board last month aim to force all PFI schemes onto the balance sheets of either the Government or the private sector companies involved.

However, PFI lawyers and contractors told CJ this week that some Government departments are not following the new rules but using them as leverage to force private sector bidders to take on more residual risk. They are implying that if they do not, their PFI project will land on the Government's balance sheet and therefore be rejected as being uneconomical.

Tim Steadman, PFI expert at city lawyers Clifford Chance told CJ: "In reality few of these PFI projects will go on the Government's balance sheet because the material concern is to make sure these deals remain off-balance sheet. That is very much the focus. The overall equation being put forward is that the more risk transferred the more projects will be off-balance sheet and so the new rules are being used as an extra lever to transfer risk to the private sector."

A PFI contractor echoed Steadman's view this week. "No clear guidelines have been produced on these rules and in the meantime some departments are using them to lean on bidders to take on more residual risk. When you've got that far [with a bid] and there's a possibility it might fall at the last fence, you are in no position to refuse."

Chris Lewin of the Institute of Actuaries said the misuse of the new rules could lead to a fall off in private sector interest in PFI projects.

But the Treasury has dismissed private sectors concerns. Paymaster Geoffrey Robinson told CJ: "We have said that projects which have reached the 'best and final offer' stage by 31 December 1998 will not go under the new rules. Projects at the 'invitation to tender' stage in the three months following [when the new rules come into force] will be looked at sympathetically on a case-by-case basis to decide whether they should go on or off the balance sheet."

A Treasury spokesmans told CJ that any project considered value for money, which falls on the Government's balance sheet in that three month period would not be in danger of being dropped.