Financial advisory firm Catalyst Corporate Finance has welcomed the Treasurys plan to replace lost commercial PFI funding for waste projects but has expressed concern over how it will approve lending over the next 13 months.
Waste management PFI projects are set to benefit from a £3.5 billion cash injection from the Treasury, including the Greater Manchester waste PFI deal, to kick start schemes that have been delayed by the credit crunch (see MRW story).
In total, £13 billion of public investment in procurement will be safeguarded and 110 PFI projects are currently in the pipeline. A Treasury spokesman told MRW: £8bn worth of these [PFI projects] are expected to reach financial close over the next 13 months. The figure is dependent on the number of projects that need to close and the amount of debt they require and therefore we will clarify the level of public support required at Budget.
Catalyst Corporate Finance partner Mark Wilson said that he welcomed the Treasurys PFI funding plan because it brought much needed liquidity to the market. But he explained: There is a question mark over how much capacity the Treasury really has to be able to look at all 110 PFI projects and approve lending within its 13 months timetable. Delays will surely have an impact on landfill diversion targets as PFI projects are core to achieving these targets.
We feel, however, that any delay to the PFI programme is potentially good news for the waste operators of merchant plants, whose project financing requirements are generally not on the scale of the PFI projects and therefore have been able to access funding more easily from commercial lenders.
The Treasury spokesman said that we will know in due course which projects will be funded and which will not. He said: In time each project will, through its sponsor department, and on a case by case basis, determine its ability to secure senior debt funding through existing banking channels, or whether it needs to apply for lending support from the Treasurys new facility.
The Government will lend to those PFI projects that cannot raise sufficient debt finance, lending alongside commercial lenders and the European Investment Bank.