Treasury issues model for public sector equity participation in PF2 projects

The Government has set out its approach to public sector equity partnership in PF2 projects and published standard legal documents to be used as a template.

The model will see the Government invest alongside the private sector in a joint venture company. Each company will be majority owned by the private sector and the Government will invest on the same terms as the private sector.

The Treasury said the legal documents would be used for all future PF2 projects that involve public sector equity. They include details on:

  • The voting arrangements;
  • The Government’s right to appoint a director to each company; and
  • Increased information other shareholders will be required to disclose.

On any PF2 procurement, the documentation will be customised by the Treasury PF2 equity unit, in conjunction with the procuring authority, prior to use, to reflect project specific issues.

When a procuring authority launches a procurement for a PF2 project, it will advise prospective bidders if the Government wishes to make an investment and the quantum of that investment as a percentage of the total shareholder funding. The detailed procurement requirements will then reflect this intention.

Bidders will be required to submit bids which demonstrate that the equity will be fully funded if the public sector decided not to invest.

The Treasury said: “The Government’s new approach will provide the public with more visibility over who has a financial interest in its schools and hospitals by requiring investors to disclose the beneficial owners of their investments in PF2 projects.”

It added that the Government would receive detailed information on the performance and financial position of the PF2 companies, including profits made. The arrangements will also incorporate the Government’s new policy regarding tax compliance and public procurements.

The Education Funding Agency will be the first to issue the new standard form equity documents in the privately financed element of the Priority Schools Building Programme (PSBP). The documents have already been issued to shortlisted bidders for the first two batches of schools, the Treasury said.

Danny Alexander, Chief Secretary to the Treasury, said: “We’ve consulted extensively to make sure we get a workable model that services both the public and private sector as it should. As a shareholder, the public sector will have a stronger voice in the management of the PF2 project company and receive a share of the financial returns.

“This is a fundamental reassessment of the old PFI and it will provide better value for the taxpayer, better public services, and a better infrastructure.”

The Government’s response to A new approach to public private partnerships: consultation on the terms of public sector equity participation in PF2 projects can be found here.