Method

Purpose

Banks survey

We commissioned KPMG to survey 40 banks and financial institutions, incorporating all the main PFI lenders, on an anonymous basis.

To understand:

•  Views of market participants on current PFI issues, in particular:

•  The appetite for PFI lending.

•  Credit terms and conditions.

•  Role of The Infrastructure Finance Unit.

•  Approaches and lessons learned on major recent transactions.

•  Future expectations.

Interviews

We also held semi-structured interviews with other key stakeholders, including HM Treasury, Partnerships UK, Department for Environment, Food and Rural Affairs (DEFRA), and Partnerships for Schools (PFS), and financial institutions including the Bank of Ireland and the European Investment Bank (EIB).

To identify:

•  Views of stakeholders.

Benchmarking and modelling of results

Using market data provided by KPMG, DEFRA and PFS, we analysed the changes in loan terms between 2007 and 2009

To identify:

•  The trends in banks' PFI margins and other terms before and during the banking crisis.

We also commissioned KPMG to analyse the affordability impact of change in financing terms. Using a generic PFI financial model, KPMG's sensitivity analysis illustrates how the change in each variable has led to changes in unitary charge and returns to sponsors.

•  Using sensitivity analysis and the financial model, the relative weight of each 'driver' and the extent of any recoverable costs.

Case studies of changes in scope and bank pricing and impact on VFM

We identified four case studies which represent significant developments in the PFI market during the credit crisis:

•  Greater Manchester Waste - the only project in which the Treasury made a loan.

•  M25 Design Build Finance Operate project.

•  Newham School.

•  Barnsley School.

To identify:

•  Comparison of terms at Outline Business Case stage and Final Business Case.

•  Whether costs and benefits had been checked or adjusted.

•  The involvement of The Infrastructure Finance Unit as a lender.

•  The role of the European Investment Bank as a lender.

Documents Review

We reviewed relevant documents including:

•  Documents, emails and minutes relating to financing infrastructure projects held by the Treasury in the period leading up to setting up The Infrastructure Finance Unit.

To understand:

•  The rationale for setting up The Infrastructure Finance Unit.

•  Changes in guidance.

Overseas comparison

•  We also reviewed documents from the European PPP Expertise Centre (EPEC) on how other countries are funding infrastructure projects.

•  EPEC/EIB documents.

To understand:

•  How other countries have responded to the crisis.

•  Potential savings if the UK were to adopt the French guarantee scheme.

Expert Panel

•  We established an expert panel who, together, had expert knowledge of the banking and infrastructure/project finance sector, to provide challenge and assurance for the study.

The members of the panel were:

•  Dr Harry Bush, CB, Board Member and Group Director, Civil Aviation Authority

•  Jeremy Barker, Director, KPMG Corporate Finance

•  John Layton, CPA

•  Professor Roger Strange, Professor of International Business at the University of Sussex

To identify:

•  Challenges to study findings.