Commenting on a report in the Financial Times, Andrew pointed out that, even armed with GBP100 billion, a public sector investment bank cannot fund everything itself so needs to catalyse the private sector. First, this requires Properly Preparing Projects (the “other PPP”) which the private sector tends to take more care over. Second, the govt should take the risks that the private sector won’t (e.g. on revenue). At the same time, some risk does need to be transferred (construction, O&M) so as to justify the inevitably higher cost of funds. PFI got a bad name in the UK because it turned out that risk was not, in fact, transferred to the private sector on some projects whilst on others the returns were disproportionate. All it takes is forensic structuring of each transaction so as to allocate / share both risks and returns through first loss positions, delineation of specific risks, upside sharing and much more.
