New EU rules delay £1.2bn of PFI deals

More than £1.2bn of PFI highways maintenance and streetlighting contracts are being delayed by government plans to adopt new International Reporting Standards (IRS) that would put most PFI schemes on balance sheet.

Under current financial rules, most PFI schemes are off balance sheet. However, under IRS, due to be adopted by Treasury in 2008, most PFI schemes would have to be shown on government departments’ balance sheets.

The Department for Transport (DfT) currently has nine councils bidding for £600m of PFI credits to fund their PFI highways maintenance schemes and a combined bid from 15 councils for £694m of PFI streetlighting schemes.

However, sources say the DfT has delayed approval on all new PFI schemes until October. One source said: “The blockage is largely due to the introduction of new international financial reporting standards. DfT is trying to work out how it can fund them under the new rules and is asking the Treasury for extra capital budgets to do so.”

Progress on the new tranche of PFI highways maintenance schemes is also being hampered by the delayed £2.2bn Birmingham PFI highways maintenance scheme, which has gone back to the DfT for more funding. Amey and Birmingham Street Services (Vinci, Amec and Laing O’Rourke) are the shortlisted bidders.

An industry source said: “The DfT needs to be sure about how the Birmingham scheme works before giving the green light to the next tranche of schemes. They are concerned about costs and they may need to find additional alternative ways to fund these schemes, such as via congestion charging.”

A source at one of the nine councils planning a PFI Highways maintenance scheme said: “We were supposed to hear last December. Now the DfT says the schemes will not go before the Project Review Group until at least October because it is waiting for the Comprehensive Spending Review to see what funding it will get from the Treasury.”

The combined PFI streetlighting bid used an innovative form of procurement by combining 15 schemes. One local authority source said: “It is ironic that the schemes were fast-tracked under this new system only to be blocked by the DfT.”

A Treasury spokesman said: “It is too early to tell the effect the move to IRS will have on balance sheet treatment, as the guidance has yet to be defined and adopted, but it is business as usual for PFI projects.” He added that the government is committed to PFI, allocating £11bn in the last budget to fund PFI schemes to 2011.

A DfT spokeswoman said: “We are currently finalising our assessment of the expressions of interest received for the highway maintenance PFI pathfinder round.  The number and size of bids exceed the £600m announced as available and we are currently considering the options around this.”