The latest report on private finance for infrastructure projects has landed from the Commons public accounts committee (PAC). Over the years, the committee has rarely been particularly positive about the use of private finance to deliver new infrastructure, and in particular has often been scathing about PFI.
However, in a new era in which the government is now looking to the private sector to deliver new PPP projects in areas ranging from health centres to major roads, the MPs have understandably been looking at lessons learned and what can be done to improve matters, rather than focusing purely on the negatives.
However, questions can be raised over whether their conclusions really fit the bill to set the framework in which a modern PPP programme can flourish.
And while some may wish to dismiss the MPs’ views altogether, it is important to remember that getting politicians on board with private investment plans is almost always a critical factor in projects and programmes getting off the ground.
There are plenty of positive conclusions and recommendations in the report, which the industry will be able to get behind. For one, the MPs highlight the lack of a credible pipeline – something many hope will be rectified in the upcoming version, promised at the time of the 10 Year Infrastructure Strategy by mid-July.
Many will also nod along at the report’s findings that the infrastructure sector is facing a chronic skills shortage that will put the government’s ambitions under threat.
However, other findings may have some in the market scratching their heads. One is that there is “no central record of private finance for infrastructure investment”. While this may be broadly true – the report refers to spending through the regulated asset base (RAB) – there is a register of PFI projects that details not only the capital costs, but annual repayments.
This is far more than the public ever gets to see on publicly funded projects – where HS2 probably stands out as the most obvious example in recent years.
When looking forward to what comes next, the PAC is also critical of the government for failing to identify which financing models should be used for different types of infrastructure. It recommends an analysis of costs and benefits across sectors to “identify a preferred model for different types of infrastructure”.
This is where the real danger appears of undermining the future progress of PPP in the UK. If there is one thing we should have learned from PFI, it’s that there is not a one-size-fits-all solution to successfully delivering infrastructure projects. While it is fair to say that RAB might be more suited to, say, nuclear power plants or toll roads than building new hospitals or schools, it perhaps shouldn’t follow that every road should be delivered through RAB.
This is a lesson that has been clearly learned in Canada, where Infrastructure Ontario has been developing a wide range of different approaches that are based on the specifics of each individual project, rather than the sector it sits within. In healthcare, for example, there has been a move away from traditional DBFM for some of the larger schemes, with the agency looking to get the risk balance right, rather than worrying about what worked on the last hospital.
If MPs are encouraging the government to come up with a set of tools that must be used only in certain sectors, with little room for manoeuvre, this will only repeat some of the failures of the past – and suggests the PAC has not seen or understood the ways in which the PPP model has moved on from the days of centrally controlled PFI.
The argument from the committee that poor contract management is “impacting the quality and condition of PFI assets being handed back to the public sector” is also one that the industry – unsurprisingly – takes issue with.
In this case, it seems the MPs have been swayed by the noise around PFI expiry and handback, and while this is a genuine issue in some cases, the vast majority of PFI projects remain in good condition – better, in fact, than those of comparable age that were built through public funds at the same time.
Indeed, it is notable that, when the furore emerged around the state of the Stoke schools PFI estate a few months back, the public sector owners themselves – Stoke Council – pointed out that these schools were in a better condition than those around them.
Nonetheless, the industry must battle back against these perceptions from the earliest stages of the next phase of PPP investment – otherwise the negativity will once again consume the positives.
Accepting that mistakes were made, genuinely working to improve what has gone before and – critically – communicating the changes and the social benefits of PPP to the public accounts committee, other MPs and politicians, and the wider public at large, must now be the focus of the industry.
Part of that is about tackling ongoing issues in existing PFI contracts. But it is also about laying to rest the ghosts that seem to haunt PPP, such as a presumed lack of transparency.
The politicians still remain sceptical; more work is needed to show why the use of private finance is more than just about finding cash to plug holes in public budgets.
