Press Release - PFI Refinancing Update
7 November 2002
The public sector now has the prospect of securing a bigger
share of the gains arising from the refinancing of PFI projects,
under new arrangements introduced by the Office of Government
Commerce (OGC). The OGC negotiated these measures with the private
sector following earlier concerns of the National Audit Office and
Public Accounts Committee (PAC) about the sharing of the benefits
of refinancing. However, head of the National Audit Office Sir John
Bourn warned today that, for the taxpayer to benefit, government
departments would have to manage the complexities of the new
arrangements effectively.
The National Audit Office conducted a survey which found that 61
per cent of PFI contracts which have been let to date did not have
contractual arrangements to share refinancing gains. These are the
gains which arise from more favourable financial terms negotiated
between the private sector PFI contractor and their lenders as the
risk in the project diminishes. In its survey the NAO was informed
of 12 completed PFI refinancings from which departments had secured
benefits of at least £17 million out of total gains of about £65
million. But the NAO also found evidence that some refinancings
have taken place without departments being aware.
To address these problems the OGC issued revised guidance in
July, addressing future PFI deals, where refinancing gains are to
be shared 50/50. It also launched in October, with CBI support, a
code of practice to help departments to secure 30 per cent of
future refinancing gains on most early PFI deals. Over the past two
years the OGC has been changing the approach of departments and the
market so that 50/50 sharing of refinancing gains has been adopted
in most contracts let since June 2001.
These new measures by the OGC followed the publication in June
2000 of the NAO’s report on the refinancing of the Fazakerley
prison PFI contract. The NAO report, and a subsequent report by the
PAC, highlighted that there are opportunities for the private
sector to generate significant benefits from refinancing PFI
projects. Better financing terms can be obtained once the initial
risks of introducing the required service have been dealt with and
early PFI projects can also take advantage of the better terms that
are available now that the PFI market has become established.
Included in the NAO’s recommendations are that the OGC should
take steps to ensure departments are fully aware of the refinancing
issues covered in the OGC’s new guidance and departments should
obtain information from their contractors about their financial
situation to ensure departments are aware of all refinancings for
which the benefits should be shared.
Sir John Bourn said today:
"I welcome the new arrangements which the OGC has
introduced. They should put the public sector in a much better
position to share with the private sector the benefits which
refinancing can bring to a PFI project. But this is a complex area
and departments will need to become more expert in this topic to
enable them to manage the new arrangements
effectively."
Notes for Editors
Press notices and reports are available from the date of
publication on the NAO website at www.nao.org.uk. Hard copies can
be obtained from The Stationery Office on 0845 702 3474.The
Comptroller and Auditor General, Sir John Bourn, is the head of the
National Audit Office employing some 750 staff. He and the NAO are
totally independent of Government. He certifies the accounts of all
Government departments and a wide range of other public sector
bodies; and he has statutory authority to report to Parliament on
the economy, efficiency and effectiveness with which departments
and other bodies have used their resources.
Press Notice 64/02
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