Financing government infrastructure projects : the UK experience. David Finlay

Transcription

1 Financing government infrastructure projects : the UK experience David Finlay Director, National Audit Office

2

3

4

5

6

7 Topics to be covered The different methods of funding infrastructure investment in the UK The effect of the banking crisis on using private finance The role of the NAO as the auditor of government Lessons from recent NAO infrastructure reports

8 The different methods of funding infrastructure investment in the UK Built using public finance and paid for by the taxpayer Built using private finance and paid for by the taxpayer Built using private finance and paid for by consumers

9 Traditional procurement spend on new facilities (the theory) Replacement of Building Components (Life cycle Maintenance) Replacement of Building Components (Life cycle Maintenance) Replacement of Building Components (Life cycle Maintenance) Capex Operating & Maintenance Costs time

10 Traditional procurement spend on new facilities (what the advocates of PFI claim) Potential cost overruns and the asset delivered late Back log maintenance work can only be avoided for so long Capex Asset not fully maintained due to budget restraints Operating & Maintenance Costs time

11 Under PFI, the authority pays a flat charge regardless of the contractors costs Flat unitary charge Contractors costs time

12 The different methods of funding infrastructure investment in the UK Built using public finance and paid for by the taxpayer Built using private finance and paid for by the taxpayer Built using private finance and paid for by consumers

13 The effect of the banking crisis on using private finance Less available financing Therefore less competition Higher financing costs

14 INCREASE IN PROJECT COSTS AFTER BANK CRISIS Three main components of the annual charge averaged over project life Financing cost (about 25% of the annual charge) Up-front capital costs (25%) (funded by equity and debt) Operating and Maintenance cost (about 50%) Financing cost up by 20-33% (now about 30% of the annual charge) Up-front capital costs (23%) (similar amount of debt, but now harder to obtain) Operating and Maintenance cost (unchanged in cash terms but a lower proportion, 47% of whole cost) Overall increase in annual charge about 6% to 7% Total cost before bank crisis Total cost after bank crisis

15 The role of the NAO as the auditor of government Reports on value for money to Parliament The reports are generally after contracts have been awarded We will discuss potential issues with departments but will not provide advice We will offer training in issues the NAO has reported on

16 Lessons from recent NAO infrastructure reports You need programme management.and project management Good data is essential for good decisions Consider possible alternative solutions Allow independent challenge of procurement plans Effective contract management is essential

17

18 Lessons from recent NAO infrastructure reports You need programme management.and project management Good data is essential for good decisions Consider possible alternative solutions Allow independent challenge of procurement plans Effective contract management is essential

19

20 Financing government infrastructure projects : the UK experience David Finlay Director, National Audit Office