Government loan PFI trial extended

CGF is already being test driven on two PFI hospital deals, the £170m St James Hospital PFI in Leeds (in the hands of the Bovis-led Catalyst Healthcare consortium) and the £200m Portsmouth Queen Alexander Hospital PFI scheme (where the Carillion-led The Hospital Company consortium is preferred bidder).

Now Treasury sources say CGF will be tried on three more PFI schemes. These will be outside the Department of Health.

If the test runs prove successful, CGF will be used on 40% to 50% of all PFI schemes. One leading funder told CJ: "The government will not do all deals this way. It needs a wide body of financiers to keep the market competitive. Using only CGF would mean certain funders would disappear. The government also only wants to use CGF on the straight forward deals in the mid range, around £200m to £300m."

Another banker commented: "There is some resentment, but most financiers recognise CGF is here to stay. It makes sense from a public relations viewpoint. It removes the last ideological barrier to PFI, which is the argument that the government can borrow money more cheaply than the private sector."

Some observers believe one of the three pathfinders could be an MoD scheme. One construction managing director commented: "Chelsea Barracks would be ideal, because it is not too far from financial close, as were the Leeds and Portsmouth schemes." The Chelsea Barracks scheme is waiting for Treasury approval, following a review by the MoD's Investment Approval Board.