The document discusses the role of private finance in addressing infrastructure gaps and managing risks from public-private partnerships (PPPs). It notes that while the majority of capital spending is publicly financed, private finance has averaged £2.3 billion per year in investments. The National Infrastructure Plan from 2014-2021 anticipates 79% of £327 billion in investments will involve some private finance. Two-thirds of current PPP projects are in social infrastructure like hospitals, schools, and military facilities. The document also discusses state loan guarantees, financial market conditions, and allocating risks between the private sector, taxpayers, and consumers.

1. 1
23-24 March 2015
Matthew Rees
Director - Corporate Finance
Session 6: What role can private finance play in addressing infrastructure
gaps and how to manage the risks from infrastructure PPPs?
8th ANNUAL MEETING OF SENIOR PUBLIC-PRIVATE
PARTNERSHIPS AND INFRASTRUCTURE OFFICIALS
Helping the nation spend wisely

2. 2
Guarantees and choice of finance
Key findings
• £40bn state loan guarantee
scheme
• £1.7bn issued
• £12.3m fee income
• Majority of capital spending
is publicly financed
• Publicly financed capital
investment £57 billion in
2009-10; £42 billion in
2013-14.
• Private finance in the 5
years to 2013-14 averaged
£2.3 billion a year
Report contents:
• Rationale
• Implementation
• Risk
• Price
• Trends in public finance
• Trends in private finance
• Decision-making
process and budgets
• Recent developments in
infrastructure financing
http://www.nao.org.uk/wp-content/uploads/2015/03/The-choice-of-finance-for-capital-investment.pdf
http://www.nao.org.uk/wp-content/uploads/2015/01/UK-Guarantees-scheme-for-infrastructure.pdf

3. 3
Private finance: past and future
The 2014 National Infrastructure Plan
identified a pipeline from 2014-15 to
2020-21 of £327 billion of investment (an
average of £47 billion a year over the 7-
year period).
This anticipates that 79% (averaging £37
billion a year) will involve private finance
of some form, with the remaining 21%
(averaging £9.6 billion a year) being
direct public investment.
Significant projects in the priority project
list included HS2, Hinkley Point C nuclear
power station and the Thames Tideway
Tunnel sewer.

4. 4
Historical use of PFI
Moody’s Investors Service
concluded that infrastructure
corporate debt ratings have been
relatively more stable than other
corporate debt issuers
Infrastructure assets tend to have
higher recovery rates
HM Treasury’s PFI database as of
March 2014 shows that about two-
thirds of all current private finance
projects are accommodation.
These include hospitals, schools,
offices and military barracks, and
much of this is generally known as
‘social infrastructure’
• £60bn total; £2.3bn per year.
• 728 PFI contracts
• £232bn commitments

5. 5
Financial market conditions

6. 6
State guarantees and risk allocation
Illustrative annual extra cost through using
guarantees as opposed to direct lending
could be between £35 million and £120
million, with and without Hinkley Point C.
As the Treasury issues more guarantees,
market familiarity with this product and
transparency, open competition and best
execution in the issue of guaranteed debt,
gives the greatest potential to minimise
the premium over gilts for investors.
Risk allocation between the private sector,
taxpayers and consumers
• Traffic and volume guarantees
• Contracts for difference
• Direct lending
• Guarantees
• Government-owned financial
institutions
• Government-owned companies
• Debt aggregators