John Laing, a leading UK infrastructure developer established in 1848, has expressed concern over aspects of the new Private Finance 2 (PF2) procurement model introduced by the Treasury to replace the old Private Finance Initiative (PFI).
In an interview for the upcoming September 2013 edition of Infrastructure Investor, Derek Potts, John Laing’s managing director of business development, said that PF2 “includes some good elements which will attract more interest from developers and investors”.
However, he went on to say that “other PF2 elements could significantly worsen private sector appetite, in particular the government’s right to retain a large part of the equity, either for itself or for institutional co-investors introduced at the preferred bidder stage”.
He added: “…This could result in a consortium incurring large costs at-risk to win a project, but ending up with their equity being heavily diluted. We believe that there are other, simpler structures which could deliver the transparency the government requires, without imposing heavy disincentives on private sector developers”.
PF2 was unveiled towards the end of last year as the successor to the prolific but controversial PFI.
In order to help detoxify PFI, the idea of a public equity stake arose as a way of dampening the ire surrounding private sector equity windfalls by ensuring that the taxpayer benefitted as well.
Last month, the Treasury unveiled the terms upon which it proposed to take minority stakes. It said that it expects to have a minimum 15 percent stake in each project through “HMTCo”, a company wholly owned by the Treasury. Each shareholding of 15 percent will allow the nomination of a board director.
The Treasury suggested that HMTCo be entitled to nominate an observer to the board “to support better collaboration”. The observer would not have a vote and “can be excluded for the discussion of specific matters if so required by a majority vote of the directors, recognising that this may be appropriate for certain matters”.
The document also indicates that the Treasury may sometimes reduce its investment after financial close in order to “promote investment opportunities for new long term investors”.