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Out-Law News 2 min. read

UK government seeking financial advisers for PF2-funded road projects


Two major tunnelling projects planned by Highways England are likely to be delivered using the 'PF2' private finance funding model, the government has indicated.

It has begun recruiting financial advisers for the two planned projects: the £1.3 billion A303 Amesbury to Berwick Down road improvement project, which includes a 1.8 mile tunnel under Stonehenge; and the £1.5bn Lower Thames Crossing project, which will include a new tunnel under the River Thames. Both of these projects are expected to be procured using the PF2 model, according to prior information notices (PINs) published in the EU Journal.

Both projects are due to enter the development phase shortly, progressing through the development consent order process and procurement of a DBFM [design, build, finance and maintenance] contract, according to the PINs.

The whole of the Stonehenge project is likely to be delivered under the PF2 model, as are the approach roads to the planned new Lower Thames Crossing, according to the PINs.

The PINs indicate that the government expects to use the PF2 model, which was introduced in 2013. PF2 replaced the previous Private Finance Initiative (PFI) regime and allows the public sector partner to effectively take on the role of a minority shareholder in a privately-financed public infrastructure project.

"Using the wide pools of low-cost capital to take and manage risk in the development of infrastructure will be an important feature of further investment in infrastructure and energy assets," said project finance expert Stephen Tobin of Pinsent Masons, the law firm behind Out-Law.com.

"Certain assets are better financed without the government using its own cash at the outset and there have been many successful privately-financed roads over the years. The real question will be whether continuing to use general taxation and old-style road tax to fund the transport network is sustainable," he said.

Last week, the government re-stated its commitment to Crossrail 2, the planned north-east to south-west rail line through London into Surrey and Hertfordshire. Transport secretary Chris Grayling said that the government would agree "a way forward" on the project ahead of this autumn's Budget, which would include a greater role for private finance at the construction stage.

"While London has shown how it could pay for half of the scheme over its life, the mayor and transport secretary want to see how London could fund half of the scheme during construction," said Grayling in a joint statement with Sadiq Khan, the mayor of London.

"[We] agree on the need to ensure a funding package which works for both London and the rest of the country and recognises other priorities, but also delivers the new capacity and connectivity that London needs," they said in the statement.

Editor's note 02/08/2017: This article previously stated that the government 'will' use PF2 to fund these projects. Highways England has pointed out that the document only says that the government 'expects' to use PF2 and that no final decision has been made. We apologise for the error, which we have corrected.

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