The involvement of third-party finance is an important factor in the success of PFI. Private finance offers value for money in PFI procurement in circumstances where the benefits it brings outweigh any cost involved. The Government seeks to ensure that it receives the best value for money in securing the benefits of private finance for PFI projects. Consequently it is determined to: • maintain a variety of sources of funding for PFI projects to ensure that competitive tension provides value for money, that the risks associated with a major investment programme are spread in a sustainable fashion, and that the Government's exposure to systemic market risks is minimised; • explore the provision of framework funding, particularly in bundled small PFI schemes to provide a faster, cheaper funding solution for these kinds of schemes; and • explore through pilot projects and consultation the potential of a form of credit guarantee finance, as one of the variety of sources of funding that could be available for PFI. This type of financing separates funding and risk taking by retaining the involvement of private financiers as risk takers in PFI, but funding projects through Government gilts; thus saving the cost of the private sector securing funds, which is separate from the cost of it taking risks. Also, the Government wishes to ensure that the involvement of private finance does not lead to unnecessary inflexibility in privately financed projects because of excess termination costs. It will explore measures to assure this flexibility, including: • consulting on the role of the Spens clause in the termination of PFI projects funded through bonds; and • examining and consulting on the value for money of requiring the private sector to hedge interest rate risk on a project specific basis. |