PF2: What you’re saying

PwC’s Richard Abadie thinks PF2’s greater emphasis on equity will make projects more expensive, while DLA Piper’s Liam Cowell argues there ‘is nothing ground breaking’ in Chancellor George Osborne’s announcement.

Richard Abadie, global head of infrastructure, PriceWaterhouseCoopers:

The new PF2 model appears similar to the alleged ‘discredited’ PFI model.  Besides the change in name, the core of the model i.e. using private finance to finance construction and getting repaid over a long period of time, remains the same and will be welcomed by local and international contractors, investors and lenders.   

Some of the changes such as transparency are welcomed and overdue and nobody can argue against them. The increase in equity required for projects is a surprise as it will likely makes projects more expensive.  Maybe the government feels that by buying up to half the equity, they can argue the increased cost is being returned to the taxpayer.

Nick Prior, head of infrastructure and capital projects, Deloitte:
It is essential that this new model gets as much political advocacy as possible to ensure it is not undermined in the way that the previous PFI model was. Naming it ‘PF2’ may not help distinguish it enough from ‘PFI,’ but there are some significant differences. Removing facilities management contracts from the model – and hopefully ending issues like £400 light bulbs – is an important step. The new model will also facilitate access to sizable, sustainable and long term debt financing which has not been the case for the PFI model for some time.   
This is a different model for a different time and different financial markets. It is quite possible that the changes proposed, when compared to the old PFI model, may make some projects more expensive, but this reflects the difficult climate we are operating in.   
While today’s announcement is certainly a step in the right direction, the challenge now is to turn those projects into reality through the new PF2 model or other procurement routes. Government agencies must have budgets allocated to fund those project pipelines. Otherwise, this will be just an academic exercise and not the spark for the much-needed shovels in the ground.

Giles Frost, chief executive, Amber Infrastructure/International Public Partnerships: 

The UK government continues to be very supportive of infrastructure and it is clear from today’s announcements that it accepts that the bulk of infrastructure funding will come from the private sector. This is not a surprise but is very reassuring for investors in the listed infrastructure funds.

The announcements on efficiency savings in PFI projects are welcome.  One of the problems in the past has been that government has found it difficult to address the critics of PFI with clear empirical data on how PFI can deliver real value for money benefits.  I know that the sector has worked hard with government to explain to them how the services they receive from PFI projects can be more tailored to provide greater efficiency at lower cost.  Certainly one of the problems in the past has been over prescriptiveness from government leading to quite inflexible structures.

David Marshall, manager, John Laing Infrastructure Fund: 

The Chancellor's announcement in the Autumn Statement is good news for JLIF and the industry. The uncertainty about the future look and shape of PFI has been lifted.  Investment in infrastructure has been shown to be a clear priority for the coalition government. Since we are not involved in the construction of PFI assets, the changes have little short-term effect on our business, but they reaffirm our belief in our large pipeline of mature assets, both from John Laing and the wider secondary market.  
Duncan Ball and Frank Schramm, joint chief executives, BBGI Management/Bilfinger Berger Global Infrastructure: 

The changes impact new PFI/PPP projects only.  Although the changes will not immediately impact the secondary market, we welcome the fact that the infrastructure market has opened up again and look forward to a quality pipeline of projects for infrastructure funds to invest in.

Liam Cowell, UK head of projects group, DLA Piper:

 Aspects of today's Autumn Statement clearly set out to address some of the negative publicity attached to the earlier PFI deals.  If the proposed changes lead to a greater political acceptance of public private partnerships and project finance as a delivery model, that will be a good outcome. 
Public sector investment in the project company, greater transparency through public sector board membership, stripping out soft facilities management services and reviewing the value for money benefits of the private sector taking certain risks.  All this has been done before on past projects.  

On the whole, there is nothing ground breaking in the announcement, so we know it is achievable.  A confirmation that the Government is committed to PF2 as a delivery model is good news.  As is investment anticipated in 2013 from the Pension Fund Infrastructure Investment platform.  

Shorter procurement times will be welcomed by all, but the mooted guillotine if there is slippage to timetable will not be helpful and could deter investors who invest millions of pounds bidding projects.   

Today's Autumn Statement on how the delivery model will evolve is encouraging.  If the new model is going to play a significant part in the country's economic recovery, there needs to be a healthy and reliable pipeline of projects.

Mark Richards, partner, projects & infrastructure finance team, Berwin Leighton Paisner:

A number of issues are likely to be thrown up if the public sector take a stake in infrastructure projects, and in turn take a seat at the boardroom table. This includes questions about governance and the value of the underlying public sector investment. But whatever the case, a closer alignment of interests has to be welcomed.

Cameron Smith, partner, Ashurst:

Despite the Chancellor claiming that the so-called “discredited PFI” will be replaced, in reality, it will be replaced with the new PF2. However, the devil is most definitely in the detail. Given the significant amount of guidance released today, it will take some time for the market to form a considered view on the reforms being proposed.

Many of the fundamental principles of PFI/PPP developed over the last 18 years by both political parties will be retained. However, if there is a common thread from these changes, it is this – the changes heralded today will re-align PF2 with current political sensitivities (i.e. allowing the sharing of equity upside with the public sector, giving government greater control over the provision of services and facilitating greater transparency). The reforms are also aimed at attracting new sources of finance.

Liz Jenkins, infrastructure partner, Clyde & Co: 

PF2 is firstly going to be used for the Priority Schools Building Programme (PSBP) and then in the longer term for certain health schemes, prisons and courts and defence accommodation. However, it is the PSBP where it will first be seen as to whether this revised model is a success. 

PF2 is intended to improve efficiency, transparency, and accountability and help get more UK infrastructure projects off the ground. The intention is that more institutional investment will be encouraged reducing the role/monopoly of the banks, procurement times will be reduced and the public sector will share more of the rewards by taking a share in the equity, lifecycle surpluses and refinancing gains. 

A new suits of standardised PF2 documents has been released. The question is whether this is sufficient in terms of a pipeline to encourage bidders to invest equity, time and money in PSBP and future PF2 projects.