PFI relaunched as PF2 with wave of projects

Aaron Morby 10 years ago

Chancellor George Osborne will tomorrow release a wave of projects to go forward under the revamped version of PFI to be known as PF2.

The centrepiece of the new Private Finance 2 initiative will be the release of the £1.75bn programme to build and refurbish 219 schools.

PF2 will also be used to build the next generation of hospitals and roads, with a new £400m Black Country hospital in Smethwick set to pilot PF2 in the health sector.

He is also expected to reveal plans to raise an extra £5bn for capital projects by demanding extra departmental savings in current spending of 1% next year and 2% in 2014/15. At least £1bn of this is understood to have been earmarked to build 100 new free schools and academies.

These are in addition to the new PF2 schools programme that the industry has been eagerly awaiting.

Under the overhauled PFI, the Government will become a minority stakeholder in project companies, giving it a seat on the board and a share of profits. Typically it is expected to take a stake of around 20%, but it could be as high as 49%.

Project companies will also be made to publish details of profits and also make transparent future taxpayer liabilities.

In his Autumn statement tomorrow, Osborne will attempt to speed up the project pipeline by setting an 18-month limit on project negotiations to avoid a re-run of the painfully lengthy PFI process where projects could take up to five years to reach financial close.

The Government will also introduce new contract clauses to allow hospitals and local authorities room to renegotiate service agreements with other providers, if they are more cost effective.

Osborne will also reveal he has saved £1.5bn by renegotiating current PFI deals with a further £1bn expected to be clawed back in continuing talks with the private sector.

The drawn out review of PFI has caused a big hiatus in major projects coming forward, but the Chancellor will now commit the Government to press ahead with a raft of new schemes to help kick-start the economy.

Anna Stewart, Chief Financial and Commercial Officer at Laing O’Rourke said: “We welcome the Government’s announcement on the new approach to PFI, particularly the move to provide more transparency and efficiency in the procurement process.

“We now look forward to a true partnership with the Public Sector as a co-investor and see opportunities to drive innovative, higher value outcomes for the UK tax payer.

“We now need to see a steady pipeline of opportunities starting to appear off the back of these changes to help kick-start the economy and provide much needed stimulus to the construction industry and the wider UK economy.”


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