PFI financing for new infrastructure is “extremely inefficient” a committee of MPs has warned.
The Treasury select committee, which investigated the future of the PFI initiative, found that PFI projects represent a “significant cost” to taxpayers, due to differentials between Government gilt rates and the capital cost of PFI projects.
The report said: “Government has always been able to obtain cheaper funding than private providers of project finance but the difference between direct Government funding and the cost of this finance has increased significantly since the financial crisis.
“The substantial increase in private finance costs means that the PFI financing method is now extremely inefficient.
“Recent data suggests that the weighted average cost of capital of a PFI is double that of Government gilts. PFI will only provide value for money if this differential in the cost of finance, which has significantly increased, is outweighed by savings and efficiencies during the life of a PFI project.”
AEA global practice director for waste management Dr Adam Read told MRW: “Much of this report considers how departmental accounting should deal with PFI funds and transactions, so it’s of little direct interest to the sector.
“Given that a number of high profile waste management deals were stripped of their funding it’s of less interest now than ever before.”
The estimated cost of capital for a typical PFI project is now put at 8% - double the long-term government gilt rate of around 4%. Paying off a PFI debt of £1bn could cost taxpayers the same as paying off a direct government debt of £1.7bn.
An aide to chancellor George Osborne said the coalition was committed to reforming the PFI system.
“We have been saying for a long time that the PFI system we inherited was completely discredited and nothing more than a ploy to keep expensive projects off the balance sheet,” the aide said.
- Additional reporting from HSJ.co.uk