A new report from the National Audit Office (NAO) has set out insights on models of private financing for public infrastructure projects.
The report, from its studies and discussions with stakeholders in the public and private sectors, aims to support public bodies on how to finance new public infrastructure.
In order to create the right conditions to support investor and public confidence, public bodies need clear objectives and a credible and consistent forward pipeline for investment, it stated.
The NAO report highlights the importance of establishing a stable and consistent National Infrastructure and Construction Pipeline. It identifies opportunities to support investor confidence in future investment by improving the level of detail and reliability of information in the pipeline, including details and value of upcoming investment opportunities.
The government also needs to ensure it has the information and processes in place to make the right decisions at policy and project levels, it said.
It also recommends that departments develop “robust business cases with clear assessments of the benefits and risks of using private finance”, and mechanisms to balance cost considerations with the need for appropriate returns for investors.
Departments need to identify and assess risks to determine who is best placed to bear them, as not all risks can or should be transferred to the private sector because the cost of inappropriate risk transfer could be very high. The global financial markets condition also needs to be adequately considered.
The NAO has also warned against making private finance decisions as a means to avoid accounting classifications or achieve ‘off balance sheet’ investment, and the costs of maintaining or upgrading assets if handed back by the private sector. If costs are not accounted for properly, taxpayers will be exposed.
Government should “adopt a commercial strategy to deliver successful outcomes” with “commercial expertise…needed” to undertake an efficient procurement process, supplier contracts must be managed effectively, and contingency plans should include protections and alternative options to mitigate supplier risks.
Gareth Davies, head of the NAO, said:
“The government has set out its ambitions for growth over the next decade. Private finance can contribute to that growth through investment, provided that important lessons are applied from different models of financing infrastructure in the UK and internationally.”
“Government should take a transparent approach to assessing the role of private finance in major investments, showing how value for money for taxpayers will be achieved alongside appropriate returns for investors.”
A statement from Sir Geoffrey Clifton-Brown, Chair of the Committee of Public Accounts, said:
“If the government intends to rely on private financing for large infrastructure projects, it must heed the lessons from previous experience first. Government needs to be clear with taxpayers about the rationale for private financing by properly evaluating the benefits and costs against publicly funded projects, and provide a credible pipeline of projects to encourage investment.
“It would be wrong to assume that government can pass over all risks to the private sector. As we have seen previously, without the right in-house skills and the data to monitor and oversee these contracts, public bodies can be left to foot large bills when assets return to the public sector poorly maintained.”
Image of report courtesy of the NAO
