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Credit crunch has jacked up PFI costs says watchdog

Value for money on bank funded PFI projects took a hit during the recession as a credit shortage led to a 6% to 7% increase in financing costs said the government’s spending watchdog.

Riskier schemes suffered most. Financing costs for the Greater Manchester Waste PFI were as much as 12% more than before the credit crunch struck, said the National Audit Office (NAO).

“Higher financing costs eroded the value for money advantage that departments attribute to PFI,” said the NAO’s Financing PFI Projects in the Credit Crisis report. It said the Treasury”took steps to assess the impact on the value for money of projects” and “considered that all 35 contracts let in 2009 continued to represent value for money … despite the higher financing costs”.

Assessments ‘flawed’

The NAO said those assessments were flawed because the information used did not cover all of the PFI contracts that were signed or all aspects of financing costs. It said out of date guidance was consulted on some projects, and assessments for the M25 and Greater Manchester Waste projects relied on assumptions that high savings on future whole life costs would be unachievable under conventional procurement.

In May, the NAO said it would also investigate the Highways Agency’s M25 Road Widening PFI to assess the value for money of the deal with private concession company Connect Plus, which comprises Atkins, Balfour Beatty, Skanska and Egis Projects.

  • Publication of the report came in the week that the government published its Financing a Private Sector Recovery report to address the problems businesses face accessing finance. The current system fails to deliver finance to small, growing businesses that are vital to the future of the economy, it said.

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