Treasury guarantees will make UK infrastructure more attractive, but 'pipeline' of projects still needed, says expert

Kate Orviss of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Treasury announced that 40 projects had 'prequalified' for a government guarantee for a share of the necessary finance. More than half of these are energy projects according to the Treasury; and include a planned biomass facility at Avonmouth, a marine energy park in Humberside and a gas storage project in Northern Ireland.

The guarantees are subject to further assessment and discussion, and some of the projects may obtain finance from private lenders without the need for a guarantee. However, Kate Orviss welcomed the announcement and said that the scheme should "stimulate an environment for growth and encourage investors to prioritise the UK market above others".

"A Government wrapper, in the form of the innovative UK Guarantee Scheme, will help funders as it makes investment in UK infrastructure more attractive," she said. "Projects such as the much-needed Northern Line Extension, Drax and other critical new infrastructure projects have started to benefit from the UK Guarantee Scheme."

"It is encouraging to see more good news about Government support for infrastructure projects but what would really make the infrastructure sector confident is a clear pipeline of new opportunities in which investment can be made. An updated National Infrastructure Plan, which we expect alongside the Autumn Statement, must provide investors with an attractive blueprint for investing in Britain's economic growth," she said.

Announced in July 2012, the UK Guarantee Scheme is designed to benefit up to £40 billion worth of major infrastructure projects which are struggling to obtain funding through traditional sources. It is open to financially credible, nationally significant infrastructure projects and incorporates projects in sectors including energy, transport, communications, waste and housing.

The scheme will allow the Government to act as a guarantor on a project, giving private lenders the confidence that they will get their money back if the project is unsuccessful. The guarantee will be for a proportion of the capital value of the project, and will be given on commercial terms for "a fee which is based on the riskiness of the project". According to today's announcement, 40 projects worth £33bn have prequalified for guarantees of £17bn, but additional assessment will apply before final approval for a guarantee is given.

The Government has already awarded a £75 million guarantee to Drax, operator of the UK's largest coal power station, as part of the firm's £700m programme to partially convert the plant to biomass. The conversion should be up and running within the next three years, and the plant will produce 7% of the UK's electricity once the process is complete.

Among the newly-announced projects that could benefit from a UK Guarantee once assessment is complete is a 100MW capacity biomass energy generation facility at Avonmouth, to be operated by Helius Energy; the Islandmagee gas storage project in Northern Ireland; and two gas-fired power generation projects to be operated by Intergen. The Government had previously announced that up to £1bn of borrowing on the Northern Line Extension project and the Mersey Gateway had prequalified for a guarantee.

"Getting our infrastructure right means we can be globally competitive, boost growth and create jobs across the UK," said Danny Alexander, Chief Secretary to the Treasury. "Having passed the first hurdle these companies know the government is there to help if they need it. I hope today's announcement will encourage even more businesses to consider how they can take advantage of a guarantee."

The Chancellor of the Exchequer is due to give his annual Autumn Statement to Parliament on 4 December. Infrastructure law expert Kate Orviss said that he should use this speech to "build on the good groundwork of recent days" with a clear commitment to new infrastructure.

"The UK has been a world leader in creating an attractive investment environment for its infrastructure assets," she said. "Therefore, Britain must make itself more attractive to investors to ensure it gets a lion's share of this money to provide the necessary funding to help the economy grow and become more competitive."