Britain's PFI projects may look for huge government bailout
Public finance initiative (PFI) projects in Britain may be looking for a multi-billion pound bailout from government as funding sources dry up in the wake of the global economic crisis.
Some think that when the British government brings down its budget in April, there will be new rules for PFIs.
The government could have to bail out Private Finance Initiative projects to the tune of £4bn in the next 18 months, an industry spokesman has warned.
Tim Pearson, of the PPP (public-private partnership) Forum, said the recession was limiting loans to firms on PFI projects like schools and hospitals.
There has been speculation that April's Budget may change PFI rules.
PFI schemes involve private companies paying for construction and maintenance of public infrastructure projects.
In return, the firms are then given payments from the state for between 20 and 30 years.
A spokesperson for the Public-Private Partnership (PPP) Forum said that private investment houses are having difficulty raising funds for PFI projects and are now looking at "alternative funding structures" that would rely heavily on taxpayers' money, the very reason the controversial model was implemented to begin with when Margaret Thatcher was prime minister.
But Tim Pearson, director of private equity firm Innisfree and spokesman for the PPP Forum, said private firms might need state help for funding that should have come from commercial loans.
"Because we are having problems raising the funding, what we are now looking at is alternative funding structures," Mr Pearson told BBC Radio 4's World This Weekend.
Even with possible European Investment Bank funding and increased equity investment, there could still be a funding gap of up to 40%, he said.
"This is where the problem is, because although there is debt available, there is not much of it and the terms are much too expensive," said Mr Pearson.
"This is where we are looking to talk with the government and say we can go ahead with this business, but it is more expensive."
He said state funding would be "to some extent against the principle" of PFI, but added it was not fundamentally a problem.
A Treasury spokesperson suggested that if government was going to underwrite PFI projects, it would be virtually the same as using traditional public financing.
Liberal Democrat Treasury spokesman Vince Cable, a long-time sceptic about PFI, said the government should go back to more traditional public financing structures rather than use taxpayers' money to prop up the public-private model.
"We need to be very careful about the taxpayer taking all the risks and the private partners taking all the benefits," he told World This Weekend.
This week, British Columbia's government released a budget that boosts the use of public-private partnerships (P3s) despite the financial problems being experienced by private financiers worldwide.