When the £6.2 billion (€7.2 billion; $8.9 billion) M25 road deal reached financial close last June it was seen as a landmark deal – proof that quality projects could get financed even at the height of the credit crisis.
M25 PFI: good value for
As such, the NAO’s investigation will cover what options procuring authority Highways Agency looked at before selecting the private finance contract as an appropriate solution to problems such as congestion and safety; how it managed the procurement process, including how the credit crisis delayed the finalisation of the contract and caused financing difficulties; and what arrangements the procuring authority has in place to manage the contract in the long-term, NAO said.
NAO’s final report should be completed by autumn. A spokesman from the entity explained the report will then be sent to the lower house of the UK Parliament which can, in turn, start a hearing based on NAO’s conclusions on the contract. It can then produce its own report which it could send to government for its response. However, the spokesman declined to explain what could happen if the report finds the M25 contract isn’t delivering good value for money.
The 30-year project finance initiative (PFI) contract to maintain and widen the M25 to four lanes was awarded last May to a Balfour Beatty/Skanska-led consortium. It reached financial close in early June backed by a club of 16 banks and the European Investment Bank (EIB). The commercial banks provided £950 million of debt starting at 250 basis points (bps), rising to 300 bps in year 7 and 350 bps in year 10. The EIB contributed a further £400 million in debt.
A source involved in the deal described the financial close at the time as a “total miracle”, given the circumstances in the financial markets.