Summary
Government projects funded through Private Finance
Initiative (PFI) deals are generally financed through a mixture of debt finance
and equity finance. Long-term projects may be refinanced during the life of the
project.
The Committee of Public Accounts's Report
'Update
on PFI Debt Refinancing and the PFI Equity Market' (HC 158) examines the
PFI debt refinancing experience, the operation of the PFI equity market and the
availability of financial information about PFI projects.
This
Report follows on from an April 2006
NAO
report (HC 1040) of the same title.
In 2002, the government
introduced arrangements for the private sector to share PFI debt refinancing
gains with the public sector, with an expected return for the public sector of
£175-£200 million from the voluntary sharing arrangements on early PFI deals.
However, up to December 2006, the government had secured the right to
gains of only £93 million, and whilst some of these early refinancings have
generated very high rates of return to the private sector investors, there have
been additional risks to the public sector in the form of higher termination
liabilities and extended contract periods.
In the PFI equity market
there is a developing secondary market which enables investors to acquire
shares in PFI projects which are already in progress and some investors are
building up portfolios of PFI investments. There is no requirement for the
gains on selling shares in PFI projects to be shared with the government.
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How does it affect
me?
If you work in or use a public service sector, such as the NHS,
that has been touched by a PFI deal, this affects you.
The Committee
examines the PFI debt refinancing experience, the operation of the PFI equity
market and the availability of financial information about PFI projects.
The Chairman of the Committee of Public Accounts said: “Local public
sector officials taking forward PFI projects such as hospitals or schools are
often painfully lacking in commercial experience. The ill-conceived Norfolk and
Norwich Hospital refinancing in 2003 demonstrated this all too clearly. Staff
negotiating the fine print of refinancing clauses in contracts, where the risks
to the public sector can be high, must be trained so that they are not
outwitted by their commercially-sophisticated private sector counterparts."
See more on the
Private
Finance Initiative (PFI) on the Treasury website.
Find out more about
the work of the
Committee
of Public Accounts.