Private Finance Initiative

[Literature Review]

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Private Finance Initiative

A public sector authority signs a contract with a private sector consortium, technically known as Special Purpose Vehicle (SPV). This consortium is typically formed with the specific purpose of providing the PFI. It is owned by a number of private sector investors, usually as a construction company and a service provider, often a bank as well. Consortium funding will be used to build the facility and maintain and replace capital over the contract life cycle. Once the contract is in operation, the SPV can be used as a conduit for discussion amendment to the contract between the customer and the operator of the facility. SPV often billed intermediary between "service" which has been criticized by the House of Commons Public Accounts Committee.

PFI contracts are for periods of time, usually 30 to 60 years. During the period of the contract, the consortium will provide certain services that were provided previously by the public sector. The consortium paid for the work in the course of the contract in a "no service no charge" basis of the results.

The public authority to design an "output specification" which is a document setting out what the consortium expects to accomplish. If the consortium fails to meet any of the rules agreed to be losing a part of your payment until standards improve. If the rules do not improve after an agreed period, the public sector authority is usually entitled to terminate the contract, compensate the consortium as appropriate, and take ownership of the project.

termination procedures are very complex, as most projects are not able to secure private financing without assurances that the financing of the project debt will be repaid in the event of termination. In most cases of termination of the public sector is obliged to pay the debt and take ownership of the project. In practice, the termination is considered as a last resort.

The typical PFI provider is organized into three parts or entities: a holding company (called "Topco"), which is the same as the SPV was mentioned above, a capital equipment or disposal infrastructure company (called Capco "), and the services of one or operating company (called" Opco "). The main contract between the authority of public and Topco. Requirements then "fall" of the Capco Topco and Opco through secondary contracts. Other requirements then down to subcontractors, again with equal contracts. Often, the main contractors are the companies with the same shareholders as the Topco.

Before the financial crisis of 2007-2010, major PFI projects were financed through the sale of corporate bonds issued by the company that manages the PIF. Since the crisis, the senior debt financing has become more common. Smaller PFI projects - the majority in number - usually always been directly financed by banks in the form of senior debt. The senior debt is generally slightly more expensive than bonds, banks could argue is due to more accurate understanding of the solvency of PFI deals - can be considered monoline providers underestimate ...