8th May 2009
By Tash Shifrin
Two councils could bypass the Private Finance Initiative to build a multimillion-pound waste treatment facility after PFI schemes elsewhere have been bogged down by financing problems.
The possibility of an alternative procurement model being used for a big public sector scheme follows a decade in which the PFI was seen as ‘the only game in town’.
Project Reduce – a partnership between Milton Keynes and Northamptonshire councils – has secured £128m in PFI credits from the government. This is the largest allocation provided for a waste project, topping the £125m credits given to the £4.7bn Greater Manchester scheme, which was finally signed off last month.
The Manchester scheme was dogged by problems securing private finance, and was eventually signed off only after the public sector provided £337m of a total of £582m senior debt.
This included money from the Treasury’s new lending unit and Greater Manchester Waste Disposal Authority, which in a highly unusual move is now a lender to its own scheme.
Tender documents for Project Reduce show similar financing mechanisms could be used in the 28-year deal.
While funding was expected to come ‘predominantly if not wholly from private finance’, it could involve ‘prudential borrowing, other capital contributions and/or loans from HM Treasury’s Infrastructure Finance Unit’ and the European Investment Bank, the contract notice said.
The document also revealed that the two councils are open to proposals that would bypass the PFI. The authorities ‘intend, using the competitive dialogue process’ to follow PFI procurement, but it adds: ‘However, the councils reserve the right to consider alternative solutions… where such solutions offer value for money.’
Alternatives could include incorporating ‘merchant power’ – building an electricity generator that could sell its output commercially.