Government U-turn on PFI bank

by Carol Millett



The Government backed down this week on its plans to launch a privatised private finance initiative bank following massive opposition from PFI bankers, lawyers and contractors.

In answer to a parliamentary question chief secretary to the Treasury Alan Milburn said: "There are no plans for a state investment bank." The statement came just two days after a meeting between Milburn and the Confederation of British Industry (CBI) at which key bankers, lawyers and contractors voiced their opposition to the creation of a state-run PFI bank.

Instead the Government will this week announce, in its response to Sir Malcolm Bates' review of the Treasury taskforce, plans to transform the taskforce into a privatised project management service that will help the public sector design, negotiate and finance PFI proposals.

It will also, on rare occasions, take equity stakes in PFI projects, but only where projects can demonstrate real equity shortage. But this ability is not central to the privatised project management service, and it will only have a small balance sheet.

The CBI was also assured at its meeting with Milburn that there will be "full consultation" on the proposals. No decision has been taken on who will run the project management team even though the contract of the existing taskforce leader Adrian Montague expires at the end of this month. A Treasury source said: "It is too early to speculate on who will lead the project management team. They have not reached a position where that question has been addressed."

Les Mitchell, MD of Kier Project Investment welcomed the news this week. He said: "Setting up an investment bank was like using a sledgehammer to crack a nut. This is a much more sensible approach which will increase deal flows on a much better basis. It should free up a lot of local authority and health trust PFI work which has suffered from lack of assistance and know how. It's an excellent way to pass centralised expertise down the line."

But PFI legal expert Mark Johnson of Devonshires sounded a note of caution: "Funders can take comfort from the revised proposal but the devil is in the detail. It all depends on the role they take in funding and approving deals."

A leading banker attacked the existing taskforce: "The taskforce's contribution to the advancement of PFI has been minimal. It got carried away by big projects like the Channel Tunnel Rail Link and London Underground. CTRL was not a success and time will tell over London Underground. Apart from that, the members of the taskforce have been most obstructive. If there really is going to be a project management team, then it must have new members - there must be people in it who have "closed" PFI deals."

l The Government is expected this week to announce the results of the Gershon review of Government procurement. This will recommend the creation of a central body that will oversee procurement including PFI.