Britain's private finance-based recovery going nowhere fast
Infrastructure projects left by the wayside as banks backpedal hard.
by Nick Mathiason, The Observer
February 1, 2009 — It was a financing deal that nearly turned into a car crash. For months, lawyers, bankers, advisers and construction chiefs laboured to raise cash for the extension and upgrade of the M80 motorway, one of the busiest roads in Scotland.
The sum needed was £350m. Plan A was for two banks to lend cash and pass on the risk to a dozen other banks via a loan syndication, with the Scottish government repaying the debt over 32 years.
But the credit crunch meant that no bank was prepared to shoulder such a burden. To keep the project on track, the chief M80 adviser, PricewaterhouseCoopers, organised a "club" of four banks to come up with £200m to spread the burden, with the European Investment Bank (EIB) contributing £100m and German construction firm Bilfinger Berger, the lead contractor, stumping up £50m.
But around Christmas, the internal credit committees of the four banks grew increasingly concerned that too much of their cash was exposed on the deal. When they cut the amount that they were prepared to lend, the project collapsed.
That was until a last-ditch appeal persuaded the EIB, funded partly by European taxpayers, to up its stake by £50m. "They saved the deal," said Rod Cameron, PricewaterhouseCoopers's director of corporate finance, who advised Bilfinger Berger. He described the whole funding process as "like nailing jelly to a wall".
What followed was a frantic week of late nights and one all-night session at the end of last month in which 40 bankers, lawyers and advisers racked up fees but managed to get sign-off. It was a rare piece of good news in the most constrained lending environment for decades. The M80 PFI was just about the only major infrastructure project to have secured funding in the last six months.
Its tortuous funding journey illustrates the huge challenge for Gordon Brown. The prime minister wants to rescue the British economy, which has shed 300,000 jobs in four months, with Keynesian-style infrastructure spending.
Brown promised to keep the country working by spending £50bn this year on building homes, schools, hospitals and roads. The government's infrastructure splurge relies on the banks to supplement taxpayers' cash. But everywhere he looks deals have either fallen apart or are facing delays. From the London Olympic athletes' village and media centre, through to the £5bn M25 widening, a £600m recycling project in Manchester, new hospitals, schools, colleges and tens of thousands of social housing schemes, Britain's great infrastructure push is in danger of collapsing because of a lack of bank lending. . .
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Privatization vs. Public Values Frame
The private sector will find a way / In hard times, private money runs away
Links and sources
Can we fix it? No, we can't — not during a credit crunch, by Nick Mathiason, The Observer, February 1 2009
Posted: February 05, 2009
Voices of privatization
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