The European Investment Bank (EIB) provided a third of the funding for PFI and PF2 infrastructure projects over the last four years, data from the National Audit Office (NAO) has revealed.
Its analysis of PFI and PF2 deals between 2013 and 2017 showed the proportion of funding coming from the EIB increased from 28 per cent to 43 per cent, averaging 33 per cent over the period.
Overall the EIB provided £758m for £2.3bn-worth of PFI and PF2 deals over the four years.
The NAO said infrastructure projects have become increasingly reliant on the EIB because of new banking regulations introduced in 2013, which reduced private financers’ involvement in long-term infrastructure deals.
The NAO said: “UK privately financed infrastructure deals increasingly rely on investment from overseas banks such as the EIB.”
It added: “The impact that leaving the EU will have on UK access to the EIB financing is uncertain. HM Treasury and IPA have told us that they are actively considering this issue.”
PF2, which was launched in 2012, has failed to attract pension funds or other new investors as was intended.
This was to be achieved by investors taking a greater equity stake – 25 per cent compared with 10 per cent under PFI – which would reduce debt levels and debt risk.
However, this has failed to pull in fresh investors.
On this, the Treasury and IPA responded: “The need for lower levels of debt became unnecessary as the lending market improved.”
The NAO highlighted that a number of pension funds did bid in the debt funding for the Midland Metropolitan Hospital, and that the lack of pension fund investors could be partly attributed to the general lack of PF2 opportunities.
NAO analysis showed that just one PF2 deal was struck in 2016/17. This compares with an average of 55 PFI deals per year between 2003 and 2008.
At present no projects are being procured under a PF2 model, although there are plans to use PF2 to finance the £1.3bn A303 Stonehenge tunnel and the £1.5bn Lower Thames Crossing.
The lack of new deals has been largely blamed on “concerns about cost efficiency and value for money”, according to the responses from seven out of 11 government departments.
Despite this, the construction element of PF2 deals remained attractive, the NAO argued, as the “risk transfer to the private sector can result in benefits which can outweigh the higher financing costs”.
The NAO added, however, that its report was compiled before the collapse of Carillion on Monday.
Major cost overruns on two PFI and PF2 jobs, the Midlands Metropolitan and Royal Liverpool hospitals, are believed to have contributed to its downfall.
Craig Elder, partner at law firm BrowneJacobson, said that in light of Carillion’s collapse, the value of risk transfer from the public to private sector could be reassessed.
“Possibly that risk transfer [to contractors] was overvalued,” he said.
“In some cases that risk won’t be borne, because if the contractor goes under it will be shareholders, the lenders and perhaps ultimately the taxpayer that has to bear some of that risk.
“So I think there has been some retrenchment from that idea that risk transfer from public to private sector being good at all costs, and I think it will cause contractors to look at PFI and PF2 deals more carefully.”