Public sector investment in PF2 projects

Print publication


In December 2012, as part of the Chancellor’s Autumn Statement, the Government published its long-awaited policy statement on the future of the Private Finance Initiative (PFI), A new approach to public private partnerships (PF2 Policy). The first PF2 projects are the privately financed element of the Priority Schools Building Programme, covering 46 schools in five batches, the first of which was released in June 2013.

As part of its reforms to PFI, the Government announced it would act as a minority investor in future PF2 projects. HM Treasury recently issued a consultation along with a draft Shareholders Agreement, Articles of Association and Loan Note Instrument, detailing how it sees that minority investment working. There is nothing to stop local authorities using a similar investment model for their own PPP projects and so the draft documents are worth a look.

It works like this. The Government, through a separate unit within the Treasury (the Treasury PF2 Equity Unit) will invest a minority share, alongside the private sector, into a joint venture company. The investment will be on the same terms as those agreed by the private sector and will be done through a company wholly owned by the Treasury (HMTCo). The minimum HMTCo investment is expected to be 15 per cent. Since the draft Shareholders Agreement proposes that each shareholder with a 15 per cent. shareholding can nominate a director for each 15 per cent, it means HMTCo will have at least one director on the company’s board. In addition, HMTCo can nominate an observer to the board, which could be the authority or other local representative as appropriate, such as a school.

Having a minority shareholding and board membership should mean that the public sector has a seat at the table giving more visibility of project information and more involvement in strategic decision making. The objective is to secure greater transparency, better partnership working and improved value for money as the public sector shares in investment returns.

The final versions of the Shareholders Agreement and Articles of Association of the joint venture company, plus the Loan Stock Instrument (since equity is frequently invested by way of share capital and loan stock) will form the Standard PF2 Equity Documents.

Although the consultation has now closed, it and the draft Standard PF2 Equity Documents are still available online here.