11. Given the lack of visibility over the secondary market it is difficult to ascertain the effects that the secondary market has had to date.
12. In theory, the secondary market is likely to have had a positive effect on the availability and cost of equity capital in the primary market. The secondary market provides some confidence to primary market investors that they will have an exit opportunity and that they will not be tying up capital for the full length of the contract. This confidence could mean more investors and more capital in the market, which in turn drives competition and reduces the cost of equity finance.
13. But the consolidation of equity in the secondary market also brings a number of a risks:
- Firstly, it may provide the consolidated owners of shares with disproportionate market power, and particular asymmetry of power over small public authorities tendering and managing single PFI contracts. We would be concerned if we started to see a few consolidated owners dictating contract and commercial terms. We do not have evidence that this is happening.
- Secondly, consolidated owners are able to bring more expertise and knowledge to bear in managing their contracts, whilst being less tied to the individual relationship between the project and public authority. This can be beneficial, if it means they bring expertise in the management of their subcontractors that will aid the aims of the project. But it could also mean more challenge to the public authority's contract management. For instance, a consolidated owner might be in a better position to challenge a claim or to demand extra payment where the contract specification is unclear. Again, there is no clear evidence that this is happening.
14. On the other hand, a change in the share-ownership of the project company has few direct effects on the operational aspects of the project. The contractual terms are unchanged, and the organisations and people delivering the project will rarely change. The project company will remain responsible for the delivery of the project, but will seek to pass as much of the risk associated with that delivery to sub-contractors. Consequently, the key relationships between the public authority as client and the Project Company's sub-contractors will remain unchanged.