Treasury delays PFI bank as fears grow

Exclusive by Carol Millett



The future of the Treasury's proposed PFI investment bank was hanging in the balance as CJ went to press, as crisis meetings were being held between Treasury and the private sector.

The bank, called UK Capital, was due to be launched later today by Treasury secretary Alan Milburn along with in announcement on the standardisation of PFI procedures. But senior Treasury sources told CJ on Monday that the bank's launch would be delayed to address mounting criticism from leading PFI contractors, bankers and advisers.

Taskforce leader Adrian Montague met with the Major Contractors Group on Monday to allay their fears. A further crunch meeting was planned with the Confederation of British Industry on Tuesday, after which Millburn was expected to decide whether to press on with the launch.

PFI players are particularly angry that they have not been consulted over the creation of UK Capital and frustrated by the secrecy surrounding UK Capital's brief.

Contractors fear UK Capital will make PFI deals more expensive and will slow down the flow of deals. PFI advisers and funders are worried that UK Capital will create a coterie of four or five favoured law firms and lenders.

Bankers are so concerned that they have instructed their lawyers to challenge UK Capital in the courts if its brief encroached on project funding.

"Funders believe UK Capital could contravene EC state-aid rules and EC procurement legislation," said a PFI legal expert. "If there is more than 10 per cent state investment in a project then it would contravene EC state aid rules and this could be challenged."

Milburn is expected to hear strong views from the CBI, where opposition has been mounting since Montague met with CBI members two weeks ago to discuss UK Capital. The meeting included PFI contractors, IT companies, lawyers and funders.

One CBI member told CJ: "Members expected Montague to lay out exactly what UK Capital is all about. Instead, he refused to give any details and insisted on talking about the problems with PFI as he sees them. People were seriously angry."

Another source close to the CBI said: "The Treasury likes to put about that only greedy bankers and lawyers are opposed to UK Capital because it threatens their profits but the lie was nailed at this meeting because there was a true cross-section of members involved in PFI there and absolutely everyone was against UK Capital. Montague was quite taken aback by the level of opposition. Although why it should come as a revelation to him this late in the day is a mystery."

Opposition is also mounting in Government circles. A Treasury insider told CJ this week: "There is plenty of opposition to this in the public sector. There is just a small clique within the Treasury with vested interests in UK Capital who are pushing hard for it to go ahead."