News that some schools were at last being released by the Education Funding Agency has come as welcome relief to work starved contractors, but as many questions have been raised as answered about the future procurement methodology for all public sector infrastructure.
Only 46 of the 216 projects released under the Priority School Building Programme are to be financed via the new PF2 private finance programme that was launched after a fundamental reassessment and much deliberation only last December.
The Treasury said at that time that the government remained committed to public private partnerships and PF2, which involves the public sector taking equity stakes of up to 49% in projects, would keep the private sector involved while delivering a range of benefits in areas like cost, speed of delivery, flexibility, transparency, value for money of risk allocation, and widening of the sources of debt and equity finance. Institutional investors like pension funds were to be encouraged to help fund the National Infrastructure Plan by taking stakes in projects.
The future for private finance briefly looked bright. But now it emerges that the PF2 route will be used for only £700 million of schools that will be procured in five batches to be announced in the Offi cial Journal of the European Union in June. The rest of the programme will be funded using capital funding, with further details to come following the government’s Spending Review in June.
So after all the delay to public sector projects from waiting for the review of private finance, the chosen procurement methodology already looks as if it isn’t going to be used that much. Government departments are said to be highly sceptical of any project finance type procurement solutions for infrastructure delivery – the Ministry of Defence for example has already declined to use PF2 for major procurements.
The main benefit being seen for the aggregator approach is that it should speed up the process of seeing infrastructure funded and delivered.
PF2 was not welcomed with universal acclaim by the construction industry or project finance specialists, who worried that the familiar structures of deals could be changed under PF2 and government might be inclined to interfere in the running of project companies as they had their equity stakes to look after. But at least it looked like a way forward away from what had been seen as undue dithering.
Already though, it seems that PF2 has had its, brief, day. The fact may be that the capital markets are unable or unwilling to find infrastructure projects on the scale that the government may have originally envisaged. The problem is though that the UK government is unlikely to be able to borrow everything needed to fund the country’s infrastructure needs, which grow almost by the day as under investment even in basic maintenance of assets like roads continues to blight economic prospects. So if not PF2, then what?
Nick Barrett
Editor