Forth acts on PFI concerns

January 26, 1996

University heads are working with ministers to "expose" the weaknesses of the Private Finance Initiative in higher education, it was claimed this week.

Eric Forth, the higher education minister, has agreed to meet with the Committee of Vice Chancellors and Principals to identify the size of the funding gap left by capital cuts in November's Budget that cannot be made up through PFI funding.

The minister has accepted that there may be a case to be made to the Treasury that certain kinds of university and college capital projects, such as new laboratories or equipment, are inappropriate for the PFI, according to CVCP officials.

The news comes amid mounting concern over the practical implications and associated costs of PFI, which the Government has told institutions they must use to make up for a real-terms drop in funding for buildings and equipment of Pounds 169 million over three years.

This week the Higher Education Funding Council for England moved to allay fears that institutions and investors would be faced with reams of red tape generated through PFI applications and to tackle confusion over the definition of PFI.

And Gillian Shephard, Secretary of State for Education and Employment, signalled she would be prepared to consider allowing universities and colleges a greater degree of freedom from rules and regulations governing capital projects if they pursued a "PFI solution" to funding.

But Eric Forth is said to be concerned that institutions will be unable to attract private investors to back projects that are unlikely to bring in an income stream to service loan repayments, such as new teaching and research buildings and purchasing of equipment.

Gareth Roberts, CVCP chairman, said that in a recent meeting with CVCP officials Mr Forth "agreed we should work together on the PFI because we want to expose just how narrow the scope is for PFI in higher education".

Tony Bruce, the committee's head of funding, research and strategy, said Mr Forth appeared to be sympathetic to the argument that PFI was inappropriate for many higher education projects.

"He was obviously concerned about the effects of a lot of capital cuts," he said.

Dr Bruce said another issue that needed clearing up was the precise definition of PFI - an important question because institutions are being told they must explore the possibility of a "genuine PFI solution" for any future capital project. The Treasury and the HEFCE say one of the key elements of PFI is the transfer of risk in capital projects from the public to the private sector. But this is only implied in the Department for Education and Employment's definition, which is "promoting options in the public sector that encourage commercial investment in facilities and services, giving better value for money and transferring the management of the project and services to the private sector".

Some vice chancellors have said that they believed borrowing and leasing fell within a grey area of PFI funding. But Sir Christopher Bland, chairman of the private finance panel, said this was wrong, as such arrangements did not usually involve an appropriate transfer of risk.

In an attempt to clear up the confusion, HEFCE has issued institutions with a guide to PFI. John Avery, head of the funding council's private finance unit and head of estate management, said institutions would be expected to look for PFI funding unless it could be demonstrated this was not worth while. But the funding council would not be heavy-handed in its monitoring of PFI.

Jane Henderson, HEFCE director of finance, said: "We are not going to descend on institutions with a frightening rule book of procedures. But in return we do expect them to be open-minded about PFI."

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