Whatever view is taken about whether PFI has delivered the benefits identified above, there is a further question about the role of private fi nance. How important has the use of private finance been in delivering the benefits of PFI? Could not some or all of these have been brought about by the use of less radical procurement models, not involving private finance?
To answer this challenge it is necessary, first, to get clear about what the use of private finance was intended to achieve; and, secondly, to look at the available empirical evidence (much of it necessarily anecdotal) to see if these aspirations have been realised. In doing this it is useful to distinguish between senior debt and equity. For these purposes, the latter is taken to include any kind of financial instrument junior to senior debt, including subordinated and mezzanine debt, and whether provided by project sponsors or third party investors.
The table below summarises a standard view of the intended roles of private finance within PFI.
Instrument | Role |
Senior Debt | • Provider of finance |
| • Discipline in risk analysis / allocation |
| • Due diligence |
| • Ongoing monitoring of project through the life of the contract |
| • Early warning of failing projects |
| • Step in and sort out failing projects |
| • Incur loss when projects fail |
Equity | • Provider of finance |
| • Integration of design / build / operate / maintain skills |
| • Long term performance management |
| • Long term client management |
| • Gripping emerging problems |
| • Lose some or all of their investment when projects fail |