PFI contractors use their own cash to plug funding gap

Contractors are stumping up their own cash to plug the funding gap on some privately financed schemes, Partnerships UK director Andrew Rose revealed last week.

Rose told delegates attending the UK PPP Infrastructure Financing Conference 2008 that alternative funding models are emerging in the midst of the banking crisis.

Possible solutions include European Investment Bank funding, equity funding from PPP contractors, shorter-term financing deals on long term contracts, new private sector debt funds and infrastructure equity funds.

Rose said: "Some contractors are willing to use their own balance sheets as part of the solution," adding that he was impressed with how many PPP players were "coming through the door with possible solutions".

The conference heard that restoring bank lending to PPP projects is a priority and additional measures may be taken to force banks to lend if the market remains in crisis into 2009.

Treasury PFI adviser Cameron Matson said the Treasury was working with public sector clients to ensure projects in the late stage of procurement reach financial close without delay. Projects include BSF schemes, the M25 extension and the Northern Carlisle development scheme.

Matson said: "Restoring bank lending is a priority and if things don't improve we could take additional measures. We will be looking at the activity in the market in 2009."

In the meantime, he urged PPP players to talk to the Treasury about how PPPs could evolve to meet changing market conditions.

He said: "Our door is open."But he warned that PPPs must continue to offer value for money and would not be used "simply to raise finance. The issue is in finding other ways to access capital investment with sufficient value for money. That is the challenge".