Financing of PF2

8.16  PF2 will retain private sector disciplines in undertaking a robust approach to whole life project due diligence. It will enable projects to gain access to alternative sources of long-term debt finance in view of the constrained long-term bank debt market.

8.17  PF2 is designed to widen the sources of equity finance and encourage longer-term investors, such as pension funds, into projects at an earlier stage. Equity funding competitions will be introduced at the preferred bidder stage to attract these long-term investors. This also has the potential to drive down equity returns over time and reduce the overall cost to the public sector (see Chapter 2).

8.18  Encouraging longer term investors from the outset of projects is also specifically aimed at reducing the number and size of secondary market transactions. These have often been the subject of criticism because of equity gains which are viewed as being excessive. The Government is also taking other measures to reduce the ability of equity to make windfall profits and these are summarised in Chapter 2.

8.19  Whilst private finance will continue to provide the cornerstone of the financing of PF2 projects, the Government is keen to enhance value for money of the financing by investing an element of public sector financing through a public sector equity participation. This provides for better alignment of objectives promoting more effective public private partnerships and results in better value for money for the public sector (see Chapter 2) in overall terms.