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UK considers new options for infrastructure funding

The UK Treasury is launching a consultation on possible future models for the private financing of infrastructure, which that could lead to the creation of a new investment bank. However, it has ruled out any like for like replacement for the Private Finance Initiative (PFI).

In his spring statement to the House of Commons, chancellor Philip Hammond said the consultation would consider how to support private infrastructure investment after the UK leaves the European Investment Bank (EIB).

Once the UK departs the European Union (EU) on March 29 or later this year it will lose access to the EIB, which has lent €118 billion since 1973 to UK energy and transport projects and social infrastructure.

However, the government effectively retired PFI when Hammond confirmed in last year’s Budget that it would end the use of the PFI and its successor PF2 schemes.

Mitigating loss

“Any direct government investment in domestic UK infrastructure, by way of a potential government sponsored infrastructure fund, will definitely help to promote private investment for the UK,” commented Ian MacFarlane, director, project finance at financial risk management consultancy JCRA.

“There is currently a very liquid funding market for infrastructure and anything that can encourage investment back into what should be an attractive UK pipeline, post-Brexit, will be a good thing. This would go a long way to mitigate any perceived loss of the EIB’s funding support.”

The consultation seeks views on whether the regulated asset base model used in the UK water and energy sector and/or the contracts for difference auctions in renewable energy could be applied to other infrastructure types.

To support the work of the review, the government plans to appoint an expert panel to provide advice during the review process and input on challenges facing the infrastructure market and how they can be addressed.

The panel will also help facilitate high quality industry engagement throughout the review process and provide feedback on the results of the public consultation. Members of the expert panel will be announced shortly and will comprise experts from the infrastructure and finance sectors.

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