Treasury to take equity stakes in PF2 projects

The British government has confirmed details of the revamped PFI scheme, which will give it a seat on the board and a greater say in the management of investee companies.

The UK Treasury is to own a minority stake in future public-private partnerships, government representatives announced yesterday.

Speaking at an industry event, Chief Secretary to the Treasury Danny Alexander confirmed the government’s intention to become a shareholder in all the initiatives it supports, as well as own a seat on the board of project companies. That will give it a stronger say on how these are managed, a step it claims will enhance relationships between public and private sectors and increase transparency.

The declaration came alongside a new, legal document that sets out the terms of PF2, the refined version of the old Private Finance Initiative (PFI). It follows the conclusion of a consultation process involving business, industry groups and other interested parties, and is intended to be a template for all PF2 projects.

The new scheme will see the government invest alongside the private sector via HMTco, a company wholly owned by the Treasury, into joint ventures. It will have the right to appoint a director to each company, as well as require greater disclosure from other shareholders on project performance, profits and ownership.

The documents also include an update on fresh governmental policy changes on tax compliance and public procurement.

“As a shareholder, the public sector will have a stronger voice in the management of the PF2 project company and receive a share of the financial returns,” Alexander said. “This is a fundamental reassessment of the old PFI and it will provide better value for the taxpayer, better public services, and a better infrastructure.”

The public equity stake requirement in PF2 projects is a controversial aspect of the revamped version of the scheme, otherwise described as a welcome update by most observers. Some industry players worry that the measure will act as a disincentive to investors, which could remain wary of taking development risk to then see their stake significantly 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,” Derek Potts, a managing director at developer John Laing, told Infrastructure Investor in September.

The government hopes that its fresh take on public-private partnerships will help restart dealflow. Few PFI projects have come to market in recent years, a result of the public backlash endured by the 20-year old framework over tax avoidance, over-leveraging and taxpayer value for money.