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Read the Treasury’s lips: shift your focus to energy

When the government first announced the details of private finance 2 as the replacement for the private finance initiative in December 2012, the industry believed ministers hoped to distance themselves from the original scheme (which it had helped trash reputationally).

Contractors expected PFI would be tweaked a bit, but the benefits that such a form of public- private partnership is said to enable - delivery of assets that might be difficult to finance conventionally, with risk allocated to those most able to manage them - would be retained.

But while ministers wanted to get away from the noisy criticism of PFI, no one at the time thought they wanted things to go quite this quiet.

To date, there is one hospital being procured using PF2 and a minority of school building work under the Priority School Building Programme. The Construction Products Association now doesn’t forecast any significant PF2 work on site until 2015.

Investment discouraged

Now it emerges that the Treasury is discouraging private investors’ interest in PF2 for social infrastructure.

In an exclusive interview with Construction News, Geoffrey Spence, chief executive of Infrastructure UK, part of the Treasury, says unambiguously that the “world has changed”.

“While that message serves the purpose of reinforcing the government’s commitment to infrastructure, it does raise some worrying questions”

The government is discouraging investors who want “more private finance initiative-type deals for hospitals”, telling them to put their money into major civil engineering infrastructure projects and, in particular, energy.

As he says: “If you as a business, either on the finance or construction side, really want to benefit from project finance-type deals, you’ve got to shift your focus into the energy market, for example, if you want to make money.”

Construction minister Michael Fallon agrees and points to the “steady stream of investment into energy projects”.

Curious point

The timing is interesting. With politicians’ electioneering hotting up, and much-vaunted pension and insurance companies’ direct investment in infrastructure (still) nowhere to be seen, the government urgently needs to match finance to projects.

Energy - where the lights will go out if nothing is done, nuclear is facing potential delays as the EC investigates the strike price and the potential of shale gas is as yet unknown - is desperately in need of projects on the ground.

While that message serves the purpose of reinforcing the government’s commitment to infrastructure, it does raise some worrying questions.

Yes, there’s an infrastructure plan, but how will all these projects be financed? Investors shy away from major infrastructure projects because they perceive them as inherently risky.

Meanwhile, if you’re in the business of building hospitals or schools, you might want to consider your options.

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