74 research outputs found
The move from PFI to PF2 is likely to make it more, rather than less, expensive to deliver new healthcare facilities in the future
What impact the introduction of āPrivate Finance 2ā (PF2) have on the cost of projects for the public authorities that use it? Mark Hellowell is the author of a new report which looks into how PF2 will affect the healthcare sector. He writes that, far from avoiding the āPFI messā ascribed to its predecessors, the government is taking a route that may lead to another
Are public-private partnerships the future of healthcare delivery in sub-Saharan Africa? Lessons from Lesotho
A comparative analysis and evaluation of specialist PPP units' methodologies for conducting value for money appraisals
Fair return for risk? An examination of structure, competition and profitability in the market for private finance in the National Health Service
Since 1993, the Private Finance Initiative (PFI) has been the dominant form of large-scale
infrastructure procurement used by National Health Service (NHS) organisations in the
United Kingdom. As of April 2011, 123 PFI projects for new hospital facilities had been
agreed between NHS organisations and private sector consortia, representing privately
financed investment of Ā£15.9 billion (in 2010 prices), and a projected long-term cost to the
NHS of Ā£70.5 billion. Eight additional hospital PFI schemes were being procured or prepared
for tender as of April 2011, with an estimated capital investment value of Ā£2 billion.
Despite the financial significance of PFI projects to the NHS, the literature has not assessed
whether, or the extent to which, the returns expected by investors are excessive. This gap in
the evidence base is highly problematic. The presence of excess returns to investors will
have an impact on the cost efficiency and affordability of PFI projects, and consequently the
financial sustainability of the NHS organisations that pay for them. This thesis evaluates the
returns that investors in NHS-commissioned PFI projects expect to earn with reference to
the scale of risk being borne by these investors, and explores the sources of the identified
excess via an examination of the structure and competitiveness of the PFI financing markets.
The study therefore comprises two substantial empirical components. The first draws on the
financial models of 11 NHS PFI projects to describe and evaluate the return to investors.
Cost of capital benchmarks, constructed on the basis of the Capital Asset Pricing Model, are
used as comparators to assess the Internal Rate of Return (IRR) for the 11 projects, and as
discount rates to calculate Benefit-Cost Ratios. Both measures agree on the presence of
significant excess returns for investors on each project ā with large āspreadsā between the
IRRs and the corresponding cost of capital benchmarks, and high Benefit-Cost Ratio scores.
The second empirical component provides an analysis of the structure and competitiveness
of the market for private finance. Two indicators of this marketās structure ā concentration
and entry/exit rates ā in addition to the dynamics of the procurement process are the focus
of measurement and evaluation. It is demonstrated that: (a) the market for private finance
in this sector is an oligopoly, (b) market share is highly concentrated when assessed against
UK regulatory standards, and (c) churn and market penetration rates are extremely low.
Constraints on the competitiveness of the market are identified as: (i) the low number of
bidders; and (ii) the extensive period of non-competitive bidding in the final phase of the
procurement process, in which the output specifications of projects are materially altered.
The thesis concludes that recent reforms to the procurement process have been ineffective,
and the problems underpinning a lack of competitive pressure in procurement may be
insuperable, given the inherent complexity of this form of investment and the need to
secure external financing. For the NHS, this source of cost inefficiency implies substantial
opportunity costs (i.e. foregone opportunities for additional capital investment) and excess
costs (i.e. a higher than necessary burden on the revenue budget). A stronger regulatory
regime, incorporating regulation of the profitability of PFI projects for investors, is required
to minimise the threat posed by this policy to the financial sustainability of the NHS
Government policies to enhance access to credit for infrastructure-based PPPs:an approach to classification and appraisal
Analysis of ways the public sector can ease the use of private money for infrastructure financing
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