Out-Law News 2 min. read

UK continues to lead international PPP market despite reform uncertainty, survey shows


The UK has emerged as one of the 'Big 5' countries expected to experience the most public private partnership (PPP) activity over the next 12 months, following a recent survey by Deloitte and industry publication Partnerships Bulletin.

Canada was set to be the leading destination for PPP according to Partnerships Bulletin (registration required), which asked 70 leading PPP companies where they expected to see the most activity over the next financial year. The US, France and the Benelux countries of the Netherlands, Belgium and Luxembourg ranked behind it, with the UK in fifth place.

The country's PPP model ranked second among the "world's most desirable PPP models" according to the survey, shortly behind Canada.

"The UK has led the way in establishing an international model for partnerships," the publication said. "This mature market has seen a raft of projects across all public infrastructure sectors from schools, to hospitals, to waste plants through to roads. UK PPP expertise is now a valuable export and each government has committed itself to using some form of private finance."

The results of the survey come at a difficult time for the infrastructure funding in the UK, Last week figures from business analytics firm Dealogic showed that worldwide project finance lending in the first quarter of the year had fallen to $64.6 billion – one third less than over the same period last year – while lending to UK businesses fell still further in March, to £1.7bn, according to Bank of England figures. Another Dealogic study, reported in the Financial Times (registration required) on Friday, indicated that the number of approved projects under the private finance initiative (PFI) funding model had "slowed to a trickle" since the Chancellor announced plans to reform the system in November.

However infrastructure law expert Graham Robinson of Pinsent Masons, the law firm behind Out-Law.com, did not find the news especially heartening.

"It may be both strange and true, as much of Europe is in deeper crisis and what other PPP markets are there apart from Australia and Canada," he said. "The resource markets are keeping infrastructure markets in Australia and Canada buoyant, but other traditional PPP markets such as the Netherlands, Spain and Portugal are in deep trouble. Germany is the only rising star in the EU, but there may be some growth in Eastern Europe."

Robinson added that it was understandable that the UK ranked higher than the emerging markets, such as Indonesia and India, as many of those regions had experienced recent political instability.

"I agree there is enormous growth potential in the 'P3 program', as they call it in the US, as there is virtually no other way to realistically fund infrastructure in the US," he added.

The US has been "the one to watch" in PPP for the last decade, according to the survey, thanks to a massive potential market. "Expertise and knowledge of the model is growing across the country and the signs are looking good that the US is getting a handle on P3 and is about to embrace them," it said.

The PFI model was introduced in the 1990s as a way of using private funding to pay for major public infrastructure projects such as roads, prisons and schools. In a PFI agreement, the private sector obtains finance to design, build and operate a facility for the benefit of the public. In return the public sector will grant its private sector partner a long-term contract to run the facility and will pay a monthly fee over the life of the project to repay the loan. PPP is a generic term used to describe partnerships which involve more flexible financing and operating contracts.

The Government announced that it intended to reform the system in November last year, and is due to report shortly on the results of a 'call for evidence' on a replacement funding method that will "draw on private sector innovation but at a lower cost to the taxpayer".

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