Treasury to grab unspent capital funds for PFI rescue scheme_2

5 Mar 09
The Treasury is to claw back unspent Whitehall capital budgets to help bail out stalled Private Finance Initiative projects.

06 March 2009

By Tash Shifrin

The Treasury is to claw back unspent Whitehall capital budgets to help bail out stalled Private Finance Initiative projects.

Chief Secretary to the Treasury Yvette Cooper announced that the government would lend money to PFI projects, many of which have been held up because of problems raising private finance.

‘This action will ensure that crucial and valuable public investment will not be disrupted by problems in the financial markets,’ she said in a parliamentary statement on March 3.

Money for the loan scheme would be raised from departmental capital underspends, Cooper said, but this is expected to be topped up through public borrowing.

The Treasury will provide finance — expected to total between £1bn and £2bn in the next financial year — on the same commercial terms as banks. Finance will be available to any PFI project that has been advertised in the Official Journal of the European Union.

Gordon McKechnie, head of PFI policy at the Treasury, told a conference in London that projects that have not yet been in the OJEU but where the PFI has been chosen on ‘good value for money grounds’ could also apply.

The scheme will mean the public sector will effectively be a party on both sides of PFI deals, as a senior lender through the Treasury and as the body providing new infrastructure.

But the Treasury is understood to feel that the creation of a special company — based in the Treasury but staffed with financiers — will be enough to keep it at arm’s length from the procurers.

McKechnie said the Treasury had looked at and ruled out other options to get individual PFI schemes moving, including making larger public capital contributions, guaranteeing bank lending and switching stalled PFI projects to public procurement.

He added that the intervention was a temporary measure.

When the markets returned to normality, the unit would ‘close up shop, sell the debt and go home’.

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