Refinancing PFI deals and extra profits for the private sector – what is this?
The people who fund private finance projects consider the early stage of the contract to be the most risky and set the interest rate on the loan accordingly. When the construction work has been completed and the facility has been operating successfully, the private sector can often refinance the project at a lower interest rate to reflect the lower level of risk. This reduces the long-term cost of the project. In a few of the early PFI projects no provision was made in the PFI contract for the public sector to share in this ‘refinancing’ benefit through lower annual payments. That is not the case now.
