PFI credited with benefiting public projects

Mar 3 2008 Western Mail

PUBLIC finance initiatives (PFIs), used less in Wales than the rest of the UK, have significant benefits, research from PricewaterhouseCoopers shows.

Its report, The Value of PFI – Hanging in the Balance (Sheet)? examines the continuing case for using PFI schemes in the light of recent accounting changes. The paper, published under the auspices of PwC’s Public Sector Research Centre, examines whether these schemes have brought the promised benefits and assesses how important the overall role of private finance has been.

Ken Poole, director in public private advisory practice with PwC said, "The paper will provide a significant contribution to the thought leadership debate currently taking place in Wales on the merits of various forms of public private partnerships particularly PFI."

The paper notes that while the evidence is still emerging, certain conclusions about the positive impact of PFI schemes can already be drawn. These include:

PFI has made a difference to the implementation of large asset-intensive projects, and the role of private finance within PFI has been a big part of that difference;

The role of debt finance has exerted beneficial discipline on public and private sectors alike at the front end of projects;

Equity investment has helped the integration of design, construction, maintenance and operation, as well as providing an incentive for sustained good performance in the operational phase of projects. Equity has also cushioned the public sector from a significant part of the "pain" in the few instances that projects have defaulted;

PFI has also had a wider beneficial effect on big-ticket public procurement, particularly in risk analysis and allocation.

The report also says that in principle, some benefits of private finance could be brought about by reforms to project control disciplines and through other non-PFI contractual mechanisms.

Looking at the implications of the change in accounting treatment on public policy on PFI, the paper notes that there is a real risk the efficiency gains made in the past 10-15 years will dissipate if procurers swing back towards conventionally-financed projects.

It suggests the policy should be directed towards improving the existing private finance models.

PFI is the most successful public private partnership model in the UK with more than 500 projects operational – including schools, hospitals, prisons and leisure facilities.

Wales has 1.3% of the total value of UK projects. Scotland has five times that amount