Private Finance Rates of Return: Evidence from the UK's PFI Roads Sector
R Bain, ITS, University of Leeds, UK
This paper presents the results from an ex-post accounting analysis of the rates of return enjoyed by the providers of equity and debt for UK PFI roads.
This paper presents the results from an ex-post accounting analysis of the rates of return enjoyed by the providers of equity and debt for UK PFI roads. The analysis examined 94 individual sets of publicly-available financial statements from Companies House (from 10 PFI road operating companies over a 9-10 year period) to assess outturn returns and compare them with ex-ante expectations.
The study is a departure from previously published research which has largely been restricted to ex-ante financial analysis. Only now that PFI roads have matured, and are some way into the steady-state operating phase of their respective concessions, are there sufficient data for a ?first-cut? ex-post financial analysis to be conducted and for the findings to be reported.
For benchmarking purposes, the UK PFI road rates of return are compared with international experience from privately-financed roads, with the return hurdle-rates used by private financiers, and with the returns realised by finance providers in other UK PFI sectors.
Rates of return are an important consideration for planners and policy-makers as they effectively represent the cost, to the public sector, of using private finance. Comparison of the outturn benefits of using private finance with the outturn costs allows for an assessment to be made of the actual value-for-money being achieved by using PFI-type procurement approaches.
Given that the UK?s PFI road sector is now over ten years old, it is perhaps timely to review experiences from the past that may serve as lessons for the future use of private finance in the context of infrastructure investment.
Association for European Transport