Local authorities (LAs) and waste management companies have been told to consider alternatives to Private Finance Initiative (PFI) funding for waste infrastructure projects, by a finance and procurement advisor.
According to Ernst and Young Waste and Renewables and Clean Energy Group director Steve Hazelton, PFIs are not the only answer for waste infrastructure. However, he added, alternatives must be considered carefully depending on what is being procured.
Hazelton suggested Prudential Borrowing (PB), Public Private Partnerships (PPP), leasing, gate fee only and management fee options are viable alternatives. He said: Theoretically you could use any of these for waste infrastructure (see information below for examples of projects procured outside PFI).
Hazelton is currently working with West Sussex County Council, which is using PB to procure waste infrastructure.
However, he added: The Department for Environment, Food and Rural Affairs view is that its not appropriate to use PB for residual waste treatment because its complex, risky and those risks should lie with the private sector.
But he said: Alternative funding options are quite interesting at the moment, if you go back two years there was a lot of uncertainty around PFI. Nobody knew whether PFI credits would be in the Comprehensive Spending Review (CSR). I think that position has changed and there is more certainty now.
PFI is established and familiar to the market, it has projects that have been closed and is favoured by central Government. It also offers standardised contract terms and the Government thinks it epitomises the risk transfer between the public and private sector.
However, non-PFI projects such as PPP or PB have no requirements to use standard contracts.
He explained that PPP is similar to PFI except that it has no Government funding support, while PB, which is new to the waste market, hasnt closed any major deals yet. PB has lower borrowing costs but lacks Government approval and funding, and requires adjustments to standard contracts and risk transfers, as there is a different risk profile, he said.
Infrastructure delivered through PFI alternatives
Energy from Waste
Prudential Borrowing (PB) - Bolton, Coventry, Dundee, Lerwick
Private Public Partnership (PPP) Dudley, Wolverhampton, Tysely, Edmonton, Cleveland, SELCHP, Hampshire, Sheffield
Gatefee Allington, Grundon - Private Sector Finance
PPP - Hampshire
Gatefee Cardiff, Greenwich
Image: Recycling plants could be funded by alternatives to PFI