The government’s changes follow a thorough consultation with market participants and we welcome the fact that a number of their suggestions have been adopted. PF2 contains features which are designed to reinvigorate the development of new infrastructure projects by improving the existing PFI scheme. It puts the U.K. back at the forefront of the evolution of PPP procurement internationally and the new guidelines – if implemented with sufficient flexibility – could lead to a higher level of activity in the Greenfield segment of the U.K.’s infrastructure market.
In particular, we welcome:
Having dealt with many of the shortfalls of the old PFI the key factor determining the success of PF2 remains the debt funding gap. Long-term project debt has largely been unavailable following the demise of the mono-line insurers and the withdrawal of financial institutions from long-term project lending after the global financial crisis and increasing regulatory constraints.
The financing of PF2 projects through a higher component of equity than previously – and thereby a lower level of gearing – is a step towards facilitating access to the institutional debt financing market through a better credit rating of the underlying projects. The government recognises that the optimisation of the funding structure needs to be driven by the market and the new guidelines appear to allow the flexibility without which the re-engagement of the institutional debt providers is unlikely.
Further support for a kick-starting of long term institutional lending to the sector is provided by the new government guarantee initiative for priority projects. While the scheme itself will only cover a portion of PPP projects it will facilitate the re-engagement of institutions in the long term debt market. The issuance and institutional take up of long term debt instruments is paramount to the success of PF2 and the government’s new initiatives seek to support their return to the market at the required large scale.
Overall we believe that the government has addressed many of the PFI shortfalls by issuing a solid set of new guidelines which – if implemented with the necessary flexibility – will provide a chance of re-invigorating the PPP Greenfield market in the U.K..