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PFI contractors fear Government plans
00:00 07 Jul 1999
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by Carol Millett
Government plans to transform the Treasury's private finance initiative taskforce into a semi-privatised Government bank - called UK Capital - are raising concerns among PFI contractors.
UK Capital is the brainchild of taskforce chief Adrian Montague and is expected to be endorsed by Pearl Assurance chairman Malcolm Bates, whose report on the future of PFI is due to be published this month.
The Treasury will take a shareholding of up to 49 per cent in the bank, which will provide funds for local authorities, Government departments and agencies to put together PFI schemes. The bank will recoup its costs by taking an equity stake in the projects or by including its funding into the total cost of the project.
But contractors are fearful that UK Capital will provide a vehicle for Government interference in PFI deals, which in turn will result in less innovation and lower margins for the private sector. A leading PFI contractor said: "I am very concerned that the Government has chosen to intervene in public-private transactions in a way that will blur the edges of responsibility. It's one thing to help the public sector to put together a deal but they are going overboard if that is all they intend to do.
"In effect the Government will be taking shares in the concession vehicle which will result in two different drivers with conflicting interests. If more control is what they are seeking then PFI will be doomed to failure."
An experienced PFI player commented: "There are three parts to PFI margins: the construction costs; the maintenance costs; and the financing costs. If UK Capital is providing the funding, the only margins remaining are construction and maintenance, which will make PFI less profitable and more of a tendering opportunity."
Another PFI contractor said: "The creation of UK Capital explains what Labour means by the term public-private partnership. It indicates a new form of PFI under Labour which will allow more political control of PFI, which history has shown will mean more bureaucracy, more state interference and less innovation."
Contractors are also concerned about the effect of UK Capital on profit margins.
Leading PFI lawyer Mark Johnson of City law firm Devonshires questioned the need for local authorities to draw on UK Capital's resources and accused the Government of attempting to control PFI advisory services.
He said: "Local authorities do not lack the resources to put forward PFI deals. It's the culture that has prevented local authority deals in the past but they are embracing PFI as they take on the Government's best value philosophy and as the flow of deals improves.
"In reality, this is the nationalisation of PFI advisory work. It's taken six years for the private sector to get this far on PFI and there's been a lot of pain in the process. For the task force to use that to set up shop as advisors and arrangers of finance is quite opportunistic."
l See Comment, page 36.
Government plans to transform the Treasury's private finance initiative taskforce into a semi-privatised Government bank - called UK Capital - are raising concerns among PFI contractors.
UK Capital is the brainchild of taskforce chief Adrian Montague and is expected to be endorsed by Pearl Assurance chairman Malcolm Bates, whose report on the future of PFI is due to be published this month.
The Treasury will take a shareholding of up to 49 per cent in the bank, which will provide funds for local authorities, Government departments and agencies to put together PFI schemes. The bank will recoup its costs by taking an equity stake in the projects or by including its funding into the total cost of the project.
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But contractors are fearful that UK Capital will provide a vehicle for Government interference in PFI deals, which in turn will result in less innovation and lower margins for the private sector. A leading PFI contractor said: "I am very concerned that the Government has chosen to intervene in public-private transactions in a way that will blur the edges of responsibility. It's one thing to help the public sector to put together a deal but they are going overboard if that is all they intend to do.
"In effect the Government will be taking shares in the concession vehicle which will result in two different drivers with conflicting interests. If more control is what they are seeking then PFI will be doomed to failure."
An experienced PFI player commented: "There are three parts to PFI margins: the construction costs; the maintenance costs; and the financing costs. If UK Capital is providing the funding, the only margins remaining are construction and maintenance, which will make PFI less profitable and more of a tendering opportunity."
Another PFI contractor said: "The creation of UK Capital explains what Labour means by the term public-private partnership. It indicates a new form of PFI under Labour which will allow more political control of PFI, which history has shown will mean more bureaucracy, more state interference and less innovation."
Contractors are also concerned about the effect of UK Capital on profit margins.
Leading PFI lawyer Mark Johnson of City law firm Devonshires questioned the need for local authorities to draw on UK Capital's resources and accused the Government of attempting to control PFI advisory services.
He said: "Local authorities do not lack the resources to put forward PFI deals. It's the culture that has prevented local authority deals in the past but they are embracing PFI as they take on the Government's best value philosophy and as the flow of deals improves.
"In reality, this is the nationalisation of PFI advisory work. It's taken six years for the private sector to get this far on PFI and there's been a lot of pain in the process. For the task force to use that to set up shop as advisors and arrangers of finance is quite opportunistic."
l See Comment, page 36.
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