Private Finance Initiative - Revision history

Tkokotas at 15:17, 18 December 2018

2018-12-18T15:17:50Z

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			''Developed by Peter Ian Otiv''


	'''Private Finance Initiative (PFI)''' is where the debt incurred by a project is repaid by the income that comes from the completed asset.		'''Private Finance Initiative (PFI)''' is where the debt incurred by a project is repaid by the income that comes from the completed asset.

Tkokotas at 17:01, 23 October 2018

2018-10-23T17:01:34Z

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	<references/>		<references/>

	[[Category:~~Financial Management~~]][[Category:Portfolio Management]][[Category:Risk]]		[[Category:Finance]][[Category:Portfolio Management]][[Category:Risk]]

Peter: /* Limitations */

2015-09-28T20:02:36Z

Limitations

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	*[http://jrtr.net/jrtr11/f46_gra.html The '''Channel Tunnel'''] between England and France		*[http://jrtr.net/jrtr11/f46_gra.html The '''Channel Tunnel'''] between England and France

	*The [https://en.wikipedia.org/wiki/Second_Severn_Crossing#Funding_and_ownership Second Severn Crossing] ~~Bridge~~		*The [https://en.wikipedia.org/wiki/Second_Severn_Crossing#Funding_and_ownership Second Severn Crossing Bridge]

	*[https://www.blackwellpublishing.com/KOLB/downloads/private/grant/eurodisney.pdf Euro Disney Land]		*[https://www.blackwellpublishing.com/KOLB/downloads/private/grant/eurodisney.pdf Euro Disney Land]

			*The [http://www.theguardian.com/global-development-professionals-network/adam-smith-international-partner-zone/financing-infrastructure-partnership-nigeria The Niger Bridge]

	==Additional Reading==		==Additional Reading==

Peter: /* The Feasibility Study */

2015-09-28T19:58:31Z

The Feasibility Study

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	===The Feasibility Study===		===The Feasibility Study===

	A thorough assessment of the project viability must be made by each sponsor because the risks that are encountered by the project are borne by themselves. Finnerty suggests<ref>J.D. Finnerty "Project Financing: Asset-Based Financial Engineering, Second Edition. Chapter 5, P.72"</ref> this should involve both the sponsors and lenders assessing their main targets that need to be achievable in order for the project to be worthwhile.		A thorough assessment of the project viability must be made by each sponsor because the risks that are encountered by the project are borne by themselves. Finnerty suggests<ref>J.D. Finnerty "Project Financing: Asset-Based Financial Engineering, Second Edition (2007) . Chapter 5, P.72"</ref> this should involve both the sponsors and lenders assessing their main targets that need to be achievable in order for the project to be worthwhile.
	For the sponsors their main concerns are raising the required funds at the right time and maximizing the revenues while minimizing expenses. Another concern is that the risk has been properly portioned out to the other partners and financiers.		For the sponsors their main concerns are raising the required funds at the right time and maximizing the revenues while minimizing expenses. Another concern is that the risk has been properly portioned out to the other partners and financiers.

Peter: /* PFI in portfolio & Programme management */

2015-09-28T19:56:46Z

PFI in portfolio & Programme management

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	In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other important concepts and processes recommended in the guide that have been linked to PFIs by the author of this article.		In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other important concepts and processes recommended in the guide that have been linked to PFIs by the author of this article.
	*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of financial implications of investment decisions. This is true when choosing project financing over conventional financing.		*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of financial implications of investment decisions. This is true when choosing project financing over conventional financing.
	*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with ~~it's~~ main criteria being low uncertainty of completion date and low risk of failure.		*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with its main criteria being low uncertainty of completion date and low risk of failure.
	*clear rules for valuing efficiency savings and other benefits. PFI rules might include properly accounting expenses (not off-balance sheet) and weighing up the long-term costs.		*clear rules for valuing efficiency savings and other benefits. PFI rules might include properly accounting expenses (not off-balance sheet) and weighing up the long-term costs.
	*A clear plan must be incorporated with every business case -as described earlier in this chapter.		*A clear plan must be incorporated with every business case -as described earlier in this chapter.

Peter: /* Why is it important? */

2015-09-28T19:55:41Z

Why is it important?

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	Finance in general is important to a project because it is often the largest cost in a project particularly on longer duration projects. This is because the interest on loans used to finance the project can rapidly increase during the project life-cycle until the loan is paid off. This financing cost can be much greater than the costs of materials, labour, design and construction.		Finance in general is important to a project because it is often the largest cost in a project particularly on longer duration projects. This is because the interest on loans used to finance the project can rapidly increase during the project life-cycle until the loan is paid off. This financing cost can be much greater than the costs of materials, labour, design and construction.
	PFI is a growing method of financing project which is already widely used is many countries. In March 2014 the UK government estimated their portfolio of PFI projects has a total capital value of £56549 Million spread over 728 projects.<ref>[https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387228/pfi_projects_2014_summary_data_final_15122014.pdf HM Treasury:Private Finance Initiative projects: 2014 summary data]</ref>		PFI is a growing method of financing project which is already widely used in many countries. In March 2014 the UK government estimated their portfolio of PFI projects has a total capital value of £56549 Million spread over 728 projects.<ref>[https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387228/pfi_projects_2014_summary_data_final_15122014.pdf HM Treasury:Private Finance Initiative projects: 2014 summary data]</ref>

	Project financing differs to conventional financing (which is provided by the parent company’s capital or revenue expenditure) by being a stand-alone entity. PFI is generally associated with larger complex projects which become more complex with the added difficulty of financial planning. This project finance entity has a limited life where as a normal corporate entity continues its life indefinitely over many different projects.		Project financing differs to conventional financing (which is provided by the parent company’s capital or revenue expenditure) by being a stand-alone entity. PFI is generally associated with larger complex projects which become more complex with the added difficulty of financial planning. This project finance entity has a limited life where as a normal corporate entity continues its life indefinitely over many different projects.

Peter: /* Financial Management Structure */

2015-09-28T19:54:34Z

Financial Management Structure

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	'''Equity''' - This is money provided by the sponsors or shareholders. Dividends are returned on the equity only after all other debts and interest is paid off. In the case of project failure dividends may not be returned on the equity so this is where the risk lies. Usually a large dividend is expected as a reward for taking on such a high risk.		'''Equity''' - This is money provided by the sponsors or shareholders. Dividends are returned on the equity only after all other debts and interest is paid off. In the case of project failure dividends may not be returned on the equity so this is where the risk lies. Usually a large dividend is expected as a reward for taking on such a high risk.

	'''Senior debt''' - this is money borrowed from banks or other financial institutions and is the first money to be ~~payed~~ off on a PFI project. This can be unsecured or secured as explained earlier.		'''Senior debt''' - this is money borrowed from banks or other financial institutions and is the first money to be paid off on a PFI project. This can be unsecured or secured as explained earlier.

	'''Concession''' - This is the period where the public sector allows the private sector entity to own and operate the asset by charging users for a service.		'''Concession''' - This is the period where the public sector allows the private sector entity to own and operate the asset by charging users for a service.

	[http://www.investopedia.com/terms/n/non-recoursefinance.asp '''Non-Recourse'''] - This is when a bank providing a loan for a project can only be re-paid from income of that project and not from other assets of the receiving borrower.		[http://www.investopedia.com/terms/n/non-recoursefinance.asp '''Non-Recourse'''] - This is when a bank providing a loan for a project can only be re-paid from income of that project and not from other assets of the receiving borrower.


	==Variations==		==Variations==

Peter: /* PFI in portfolio management */

2015-09-28T19:52:00Z

PFI in portfolio management

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	*Risk monitoring throughout the project reduces the surprise and also the impact of actuated risks.		*Risk monitoring throughout the project reduces the surprise and also the impact of actuated risks.

	===PFI in portfolio management===		===PFI in portfolio & Programme management===

	The UK has been forced to review their strategies on portfolio management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".		The UK has been forced to review their strategies on portfolio & Programme management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".

	In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other ~~relevant~~ concepts and processes recommended in the guide		In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other important concepts and processes recommended in the guide that have been linked to PFIs by the author of this article.
	*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of implications when choosing project financing over conventional financing.		*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of financial implications of investment decisions. This is true when choosing project financing over conventional financing.
	*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with ~~the~~ main criteria being low uncertainty of completion date and low risk of failure.		*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with it's main criteria being low uncertainty of completion date and low risk of failure.
	*clear rules for valuing efficiency savings and other benefits. PFI rules might include properly accounting expenses (not off-balance sheet) and weighing up the long-term costs.		*clear rules for valuing efficiency savings and other benefits. PFI rules might include properly accounting expenses (not off-balance sheet) and weighing up the long-term costs.
	*A clear plan must be incorporated with every business case -as described earlier in this chapter.		*A clear plan must be incorporated with every business case -as described earlier in this chapter.

Peter: /* PFI in portfolio management */

2015-09-28T19:43:44Z

PFI in portfolio management

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	The UK has been forced to review their strategies on portfolio management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".		The UK has been forced to review their strategies on portfolio management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".

	In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other ~~useful~~ concepts and processes recommended in the guide		In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other relevant concepts and processes recommended in the guide
	*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of implications when choosing project financing over conventional financing.		*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of implications when choosing project financing over conventional financing.
	*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with the main criteria being low uncertainty of completion date and low risk of failure.		*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with the main criteria being low uncertainty of completion date and low risk of failure.

Peter: /* PFI in portfolio management */

2015-09-28T19:41:21Z

PFI in portfolio management

← Older revision		Revision as of 19:41, 28 September 2015
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	The UK has been forced to review their strategies on portfolio management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".		The UK has been forced to review their strategies on portfolio management involving PFIs. In a document released about the use of PFI by the Treasury Committee<ref name="Treasury">[http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1146/1146.pdf House of Commons Treasury Committee P34]</ref> it was found that better value for money alternatives to PFI were not being considered because PFI projects were considered as "free money".

	In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury">have advised with hindsight in their review of PFIs. Below are several other useful concepts and processes recommended in the guide		In the OGC's management of portfolios<ref name="OGC">Office of Government and Commerce - Management of Portfolios (2011) CH7.5, P83</ref>no particular reference to PFI management is made but the guidelines are still applicable. It is identified that a post implementation review after each (PFI) project and programme should be made to ensure their future use is still the best choice. This process will review if the forecast benefits were actually realised and if the value for money was achieved whilst also noting the lessons to be learned for next time. This is just as the UK's treasury committee<ref name="Treasury"></ref>have advised with hindsight in their review of PFIs. Below are several other useful concepts and processes recommended in the guide
	*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of implications when choosing project financing over conventional financing.		*The alignment between financial managers and portfolio managers is very important because the financial managers have the best knowledge of implications when choosing project financing over conventional financing.
	*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with the main criteria being low uncertainty of completion date and low risk of failure.		*Selection of appropriate investment criteria and whether this criteria can be used throughout the portfolio or separated into different groups with different sets of criteria. In relation to PFIs a section of the portfolio should be designated for private finance with the main criteria being low uncertainty of completion date and low risk of failure.