Faith schools test central funds plan
10:13 02 Jul 2003
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A new form of funding for PFI schools that replaces bespoke finance deals with a centralised form of funding may be test driven on the PFI programme to replace or refurbish 2,000 Church of England schools.
Partnerships for Church Of England Schools (PfCS), the joint venture between the Department for Education and Skills, Partnerships UK and the Church of England that oversees the church schools PFI programme, is consulting contractors and banks about the feasability of replacing tailor-made funding packages with a centralised fund for senior debt. Banking and investor consortia would bid competitively to provide the fund.
PfCS chief executive Ross Newby said the central fund could speed up the bidding process and reduce bidders costs. He told CJ: "We are looking at the possibility of senior debt being financed centrally, via a consortium of banks. This would allow bidders to have access to finance on easy call-off terms and give us the benefits of big projects on the finance side. By buying in bulk we should get competitive rates. This could take the cost out of the bidding process for both sides."
Bidders would still be expected to invest equity in the schemes. Newby commented: "Obviously bidders will still have to take equity risk. They will have to front up and say they are prepared to put their own capital at risk, but what they won't have to do is spend the time and expense of building up a relationship with a finance house."
Bankers gave a cautious response this week. Brian Marshall, divisional director of corporate finance at Macquarie Bank, commented: "I can see it working on a series of small PFI projects of less than £20m, because a bespoke package for that can be expensive. But I think the public sector would want to maximise competition on larger deals by allowing the contractor to provide its own financial package. There is also potential to inhibit competition and innovation among banks."
Amanda McIntyre, head of the modernisation unit at the Confederation of British Industry, said any trial would need to be carefully reviewed before it was applied more widely. She said: "The government client will need to strike the right balance between standardised arrangements that could reduce tender costs and flexibility and innovation, and it is important we have a careful assessment of the impact of any trial of this form of funding."