Britain's PFI projects may look for huge government bailout

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.

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.

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.