Industry bosses have this week welcomed news that vital private sector cash is finally set to start flowing into new infrastructure projects.
Chancellor George Osborne used his Autumn Statement last week to reveal that the £1bn extension of the Northern Line to Nine Elms in Battersea is to be one of the first projects to take advantage of the government’s £40bn UK Guarantee scheme.
London mayor Boris Johnson will be allowed to borrow £1bn at new preferential rates to support the extension, subject to due diligence and the agreement of a binding funding agreement with developers before the end of 2013.
The loan will be repaid through a tariff on private development projects within the Battersea area, and through future growth in business rates revenue within a new Nine Elms Enterprise Zone.
Aecom senior director for economics and planning Jim Strike said the move was “good news” in terms of future infrastructure delivery in the UK.
“At £1bn, the financing package for the Northern Line Extension to Battersea Power Station will represent one of the largest Tax Increment Financing (TIF) schemes ever introduced worldwide. This is good.
“It shows the government is serious about using new TIF legislation to support major investment, where a strong case can be made to support new jobs, growthand deliver future tax receipts.”
Osborne said that his £40bn scheme was now ready to go after receiving 75 enquiries from project sponsors to date since its launch in July (NCE 26 July). He said projects with a capital value of around £10bn have now been prequalified as eligible for consideration of a guarantee.
Association of Consultancy and Engineering chief executive Nelson Ogunshakin welcomed the news but said greater clarity was needed over how the system will work: “The project guarantees announced demonstrate the potential for generating a real economic impact.
“However, industry needs clarity if it is to feel confident in securing both the guarantees and the private investment needed to get projects off the ground, and government must work hard to make the use of guarantees more transparent.”
Osborne also revealed details of a new-look PFI, dubbed PF2. Osborne said that the publicsector is to “share the rewards” under the new scheme.
The government will act as a minority equity co-investor in future projects to strengthen the partnership between the public and private sectors and to allow a better sharing of risk and potential reward.
WSP director Gary McCarthy said government had got it “absolutely right” but warned it now needs the skills to manage its investments properly. Osborne said that Infrastructure UK will be beefed-up to carry out this role and to inject speed into the procurement process.
“Essentially this is a riskbalancing exercise and on the one hand government has got it absolutely right by taking responsibility for their share,” said McCarthy. “But on the other hand they’ll now need to be sure they are resourced to manage it effectively - the announcements have started the ball rolling on this but the sufficiency of the resource will only be tested with actual projects,” he said.
URS executive chairman for Europe Tom Bishop agreed with McCarthy that the new PF2 structure was a “positive step”, but that the right skills were needed. He called for the formation of a single independent authority to assist government officials and provide proper governance.
McCarthy also warned there was still “some work to be done” in tapping into institutional investors.
Osborne’s announcement included the claim that seven major UK pension funds will launch their new independent infrastructure investment platform in the first half of next year.
The first programme to which PF2 will be applied is the £1.75bn privately financed element of the Priority Schools Building Programme.
Defence and healthcare projects have also been identified as potentially suitable, but no transport schemes have yet been lined up.
Private sector cash is vital; an annual update to the government’s National Infrastructure Plan, published alongside Osborne’s statement, revealed a work pipeline valued at over £330bn to 2015 - an increase over £70bn in real terms since last year’s plan.
The update was welcomed, but drew criticism from Olympic Delivery Authority chairman John Armitt, who likened it more to a series of projects (see box).
Olympic Delivery Authority chairman John Armitt said this week that government still did not have a plan for infrastructure planning and investment.
He said the National Infrastructure Plan was not a plan, and that the Treasury-backed Infrastructure UK was too at risk of political meddling.
“The government has not got a plan,” he said. “The [National Infrastructure] Plan is not a plan; it is a series of projects added together so the government can see what is coming forward.”
He was speaking as he launched a call for evidence for a Labourcommissioned Infrastructure Review that will consider the role a quango could play in overseeing long planning for major projects (NCE 4 October).
Armitt will lead the review with the help of an advisory panel that includes former transport secretary Lord Adonis and former HS2 chairman David Rowlands. DL