From many of the contributors you will have heard a relatively passionate explanation of the benefits of PFI, emphasising the benefits of the rigour of the PFI procurement process and contractual structure; in particular the upfront due diligence on costs and contracts, transferring PFI risks to competent sub-contractors, a payment regime that enforces continual asset maintenance, and a process that demands clarity from the public sector at the outset about what services it requires and what it can afford.
The key point is that because PFI transfers risk to debt and equity financiers, it institutionalises these project disciplines. If that rigour is not imposed on each project at the outset, that project will not be able to attract finance.
The biggest innovation of PFI has been to attract those skills used elsewhere by the private sector in project finance into the realm of public sector services and to apply those project disciplines.
The potential for a UK Infrastructure Bank in the PFI market has to be seen in this context and what its existence might do to those market disciplines.
- If that bank is designed to address market failure, ie where there is insufficient lending capacity, then its contribution would be valuable. It means that the remaining lenders can retain those skills and stay in the market, in the knowledge that even the larger deals can get financed. This is the role that TIFU has carried out successfully to date.
- If a UK Infrastructure Bank were designed to be as a relatively economical co-lender alongside private sector banks and does not crowd out those lenders, then it could be a valuable entity as it will improve project economics and affordability. But this is a role already adequately performed by the EIB. So the argument for an Infrastructure Bank would only be for instances where the EIB is capacity constrained.
- If the Infrastructure Bank were designed to replace or crowd out private sector lenders, then over time the private sector disciplines imposed across PFI deals by a multitude of debt and equity financiers could be eroded; skills which are currently well supplied by the market. It would be optimistic to assume one institution could retain those skills in the long term.
So any argument for an Infrastructure Bank needs to carefully consider how it might impact the existing market and the application of project finance disciplines in public service delivery.