5.31 A secondary market has developed which has enabled investments in the private sector project companies delivering PFI projects to be traded between parties interested in buying or selling investments in these projects.
5.32 Some of the initial investors in projects wish to realise their investment once the project is in operation. Other investors, however, are interested in acquiring investments in PFI projects in operation as an investment providing relatively stable long term returns.
5.33 Specialist investment funds have developed which have acquired portfolios of various investments in PFI projects. These investment funds get their funds from other parties which may include long term investors such as pension funds. The development of the secondary market was described in a NAO's report on refinancing and the equity market.101
5.34 In terms of managing PFI contracts public authorities need to be aware that investors in their projects may change. The authorities should make sure they understand the business drivers of any new investors.
5.35 The specialist investment funds which have acquired investments in PFI projects are able to manage these investments as a portfolio. They may be able, therefore, to improve their returns by seeking economies of scale in the operating costs in the projects, their management of the contracts (eg fighting penalties) or through better financing arrangements across the portfolio. Although refinancing gains on individual projects must be shared with the public sector there is no particular requirement for other portfolio gains to be shared.
5.36 Where shares are traded in PFI project companies there is no requirement under the standard form of PFI contract for the gains to be shared with the public sector. The gains may be subject to taxation in line with the normal tax rules for chargeable gains. The NAO and PAC have noted that there is no requirement for gains on selling shares in PFI projects to be shared with the public authorities which have let PFI contracts. The NAO and PAC have said it is important, therefore, that the pricing of the use of equity in the original contract can be demonstrated to be value for money.
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101 Update on PFI debt refinancing and the PFI equity market, National Audit Office (HC 1040, 2005-06).