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PFI insurance risk could fall on government

BANKERS THIS week warned that government might be forced to carry the risk of paying for rising insurance premiums on privately financed infrastructure projects.

They said contractors might try to force the government to agree to fund major increases in insurance premiums during negotiations on private finance projects.

The warning follows closure of the Yarl's Wood detention centre in Bedfordshire which was damaged by fire (NCE 21 February).

Security firm Group 4, was forced to shut the Yarl's Wood detention centre on 1 April after failing to agree terms for the renewal of its insurance policy.

Group 4's insurers could be liable for the £97M cost of rebuilding the centre. It is running the Amey built centre under a design, build finance and operate contract.

Banks are already braced for significant increases in insurance premiums this year following the 11 September terrorist attacks.

There is concern is that some projects could become uninsurable.

'As lenders, we will always require a fully comprehensive insurance package. The issue is whether the insurance industry is prepared to provide that cover, ' said Royal Bank of Scotland senior corporate business director Bill Morris.

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