The Association for Consultancy and Engineering (ACE) has proposed five new Public Private Finance Models (PPFMs) that could replace PFI for government infrastructure projects. These look at the potential for pooling risk, project finance staggering, risk mitigation and credit enhancement, locally sourced private finance, and the use of government equity within PFI projects.
Public confidence in PFI has been undermined by a lack of transparency about whether PFI delivered value for money. This was demonstrated by ACE’s own study of government PFI projects from 1996 to 2010, which found significant variations in the costs between departments but little evidence publicly available to explain how the money was spent within projects.
ACE chairman Paul Hamer said: “We know that government is keen to see delivery of the National Infrastructure Plan to drive growth through the UK economy. However, the public needs to be convinced that government can do this in ways that secure value for money and does not expose the taxpayer to undue risk. With that in mind it is sensible to develop a range of PPFMs such that any given project can adopt the most suitable model for its needs.”
The UK needs billions of pounds of investment to overcome an infrastructure shortfall of $434 billion1 and to overturn its competitive disadvantage demonstrated by the World Economic Forum ranking the nation’s infrastructure quality as low as 28 in the world.
New models should allow government departments, or a centralised body of expertise, to use alternative means of securing private finance that meet specific aims for a particular project. Where a project is likely to generate significant additional private growth in the surrounding area, finance might be secured against the resulting increase in business rates in the area. Alternatively, to widen the pool of investors to more risk-averse institutions, finance for a project could be split according to different aspects of the project.
ACE chief executive Nelson Ogunshakin OBE said: “Government faces a challenge in balancing the transfer of risk and the high cost of raising private finance against the UK’s need for infrastructure. These models take the lessons learned from the use of PFI and provide a suite of measures that should be applied according to their suitability for individual projects.”
1 Policy Exchange
Notes to editors
For media enquiries please contact Gavin Pearson (firstname.lastname@example.org) (020 7202 0255 or 07890 246 592).
For the first paper in this series – “Performance of PFI: 1996 – 2010:Lessons Learned“, please click here.
This paper is the second in ACE’s infrastructure investment series and explores in more detail the rationale, performance and market conditions that surround Public and Private Finance Models (PPFM).
This paper explores a number of flexible models that should help to improve public and private sector performance. Whilst, encouraging the level of private finance required to improve the UK’s aging infrastructure. Importantly, improving the models through which private finance is encouraged into infrastructure investment is key to providing savings for the taxpayer.
These PPFM models are derived as an output of ACE research and are conceptual in nature. Full financial modelling of each model would be necessary to test the viability for successful implementation on a particular project. The ACE team welcomes the opportunity to continue to work government to fully develop each of the models for practical application within the built and natural environment.
This series of papers will examine how the UK can secure much needed investment in its social and economic infrastructure in the coming years.
Achieving this is important. Infrastructure has been highlighted as a primary driver for economic growth, as well as a means to deliver the UK’s goal of a hi-tech, low carbon and globally competitive economy. However, the UK is acknowledged to have both a shortfall in quantity (estimated by some at £434 billion1) and quality (the UK was recently ranked 28 for the overall standard of its infrastructure by the World Economic Forum2), hampering efforts to achieve these goals.
The timing of this series is also important in relation to proposed solutions to the UK’s infrastructure challenges. At the UK level, the National Infrastructure Plan is moving from its formative stage to delivery. Infrastructure solutions in the Devolved Nations are also taking shape, with examples, such as the formative Welsh Infrastructure Investment Plan being developed.
Developing sustainable models and sources of funding and financing for these proposed solutions, -especially in tough economic times with a restricted public purse- will require new thinking. Helping to identify these new models and sources of funding and financing and removing the blocks and challenges to them is the aim of this ACE investment into infrastructure series.
This series of papers will explore a range of options available to government as it looks to secure investment and raise the UK’s standing for infrastructure standards. These include the development of the Green Investment Bank, the potential for pension fund investment, new public-private finance models and alternative methods.
Author: Editor Gavin Pearson (email@example.com or 0207 202 0255)