Treasury consults on PF2 equity stakes

The UK government has set out the proposed terms of its financial involvement in future projects.

The UK Treasury has launched a consultation process, running until 21 August 2013, regarding the terms upon which it will take minority stakes in future Private Finance 2 (PF2) projects.

PF2 was unveiled towards the end of last year as the successor to the prolific but controversial Private Finance Initiative (PFI) procurement method.

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.

It was also felt that it would aid the transparency of projects if government were a participant in projects, tracking their progress and publishing results.

In a document entitled “A new approach to public private partnerships: consultation on the terms of public sector equity participation in PF2”, the Treasury says that it expects to take 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 proposal also suggests 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”.

As part of its push for greater transparency, the Treasury says it will publish an annual report on its PF2 investments, including the actual and forecast equity returns of individual projects and the portfolio as a whole.

Last month, Margaret Bonsall was appointed to head up the Treasury’s new PF2 Equity Unit which will represent the public sector on the boards of PF2 projects and manage its stakes. Bonsall, who reports to Infrastructure UK chief executive Geoffrey Spence, has worked in project finance and PFI since 1989.

Jon Hart, an infrastructure partner at law firm Pinsent Masons, said the consultation was a “welcome if belated step forward”. He added: “Little by little the clues that may answer the enigma that is PF2 are slowly being provided.”

The ‘belatedness’ refers to the fact that the first PF2 projects – the first of five batches of schools under the £700 million (€809.7 million; $1.1 billion) Priority Schools Building Programme – have already commenced procurement. The programme comprises 46 schools in total, with the remaining four batches to be procured over the next 12 months.

The Treasury document poses a number of questions to “all parties with an interest in the delivery and financing of public sector assets” and requests feedback by the 21 August deadline.

The document can be found at, and responses sent to