Q21 Stephen Barclay: So all those that went above that tipping point you assessed, did you?
Charles Lloyd: We were certainly closely involved in deals that went above that, of which there were very few. Greater Manchester Waste Disposal Authority is one we have looked at-that is a unique deal for size, scale and technology-but the great majority of deals were in the region of 250, 260 basis points throughout the credit crisis.
Q22 Ian Swales: That deal itself was financed through this new Infrastructure Finance Unit that had to be set up. As I understand it, that effectively took public money and converted it into the private money going into that deal. Why did only one project get put through that unit at the time?
Andrew Hudson: Remember, this was a very febrile time in the markets. What actually turned out was that the effect of TIFU making that intervention in the one deal had the effect of helping the market after that to work more conventionally again. The fact that market players knew that the Government were ready to make further loans if it judged it appropriate had the effect of stimulating market movement, which was one of our objectives. TIFU intervention was always intended as temporary and reversible.
Q23 Ian Swales: Do you think the market moved because they got frightened that they saw the Government starting to finance projects themselves?
Andrew Hudson: I don't know about frightened. Again, I will ask Andy who was most active in TIFU at this point.
Andy Rose: From the feedback we have received, the problem was a lack of supply of finance, and again, TIFU was not set up to lend in competition with banks. The policy at the time was that it was there to lend where there was no availability of finance from the private market, and in reality the only time that manifested itself clearly was on Greater Manchester. Because there was a lack of supply of bank finance at the time, the tension in the negotiations, I think the public sector felt, was very strongly on the side of the banks, so I think the answer is it had a material difference in that it created some competitive tension. Authorities were able to say to banks, "If you don't accept that point we have the option of going to another party," and we are aware of a number of cases where we were informed that that had a very powerful effect.
Q24 Ian Swales: Do you think the taxpayer as a result has had a better deal on that project than it otherwise would have done and if so why not do more in that way?
Andy Rose: I think, again, the driver was liquidity; it was not there to drive down pricing. So the-
Q25 Ian Swales: Well, what is the answer to my question: has the taxpayer as a result of this crisis had a better deal on that project than they otherwise would have done?
Andy Rose: Well, I think this is my point; I think the project would not have gone ahead at all had TIFU not lent. TIFU lent £120 million, and that was a gap because the other banks were not able to fill it. It is hard to answer the question because I think the answer is: at that stage the risk is the deal would have been cancelled only due to a lack of available funding.
Q26 Ian Swales: Has that £120 million been converted into a commercial loan now?
Andy Rose: TIFU only lent on a commercial basis. The policy of the intervention was temporary and reversible, so TIFU was staffed only with senior project finance specialists from the private sector market that negotiated a commercial deal and entered into the loan agreement on identical terms to other commercial lenders.
Q27 Ian Swales: So the taxpayer is sitting on an asset that is generating a commercial interest rate now?
Andy Rose: Absolutely.
Q28 Ian Swales: So is that not a good idea?
Andy Rose: I think the key was to try and keep the private sector in the market, so I think, with the evidence of 49 deals having occurred since, it was very, very important not to distort the private sector market where the private sector market could deliver, and the target of the intervention was only where there was not money available from the private sector.
Q29 Ian Swales: Does that unit still exist?
Andy Rose: It still exists but at the last spending review it has been identified that no further funding will be made available other than to honour the legal obligation on the draw-down on that Manchester loan.
Q30 Ian Swales: Is that not something we should be looking at? The Olympics and the Crossrail projects have a combination of public and private finance; should we not be doing more of that?
Andy Rose: Well, I think there are a number of initiatives currently being considered. Again, in the Budget and the spending review there was an announcement that the Green Investment Bank was looking at mechanisms. Again, the concept of the Green Investment Bank is still being developed, but I think the Government is looking at a number of possible interventions. The TIFU intervention was targeted on the PFI market, and given that 49 deals have closed since then without TIFU being asked to lend, I think the decision was made that allocating scarce public finances to TIFU going forward was not the right decision.