Construction companies and infrastructure funds have warned that any restriction on equity returns from private finance initiative projects risks pushing investment abroad to more receptive environments such as Canada and Australia.

Under the PFI initiative, contractors raise money to build schools, roads and hospitals and the government then makes a series of payments over the lifetime of the project. But with the scheme criticised for delivering poor value for taxpayers, ministers announced a review of PFI in November. The consultation closed on Friday, and a decision is hoped for in the spring.

Contractors say they are largely agnostic about the structure for public/private sector partnerships but with the building of much-needed schools on hold and the coalition touting big infrastructure projects as a means of kickstarting the economy, they have pressed for quick action.

They also warn that PFI’s successful replication in international markets raises the risk that investors and contractors could favour other countries if the uncertainty continues or if returns on investment are capped at too low a rate. Although contractors say they have no objection to a cap in principle, they warn it could stifle innovation.

“Because PFI is now an international market there is a danger of losing capacity in the UK unless government makes a clear policy statement soon on how it intends to take forward the PFI model,” said Stephen Radcliffe of the UK Contractors Group, which represents 30 of the big construction companies including Balfour Beatty and Carillion.

Infrastructure funds, which receive a steady stream of revenue in return for a commitment to maintain completed public assets such as schools, hospitals and roads, have also warned that some of the measures under discussion could divert investment to projects in countries such as Canada and Australia.

“Where I have a fear is that if the government overly restricts the opportunity for the private sector to generate a return against a risk profile, and have a cap on return on the risk, then …fewer people could actually be sponsoring projects,” said Andrew Charlesworth, fund manager of the John Laing Investment Fund, which has invested in assets throughout the UK including social housing, hospitals and police stations.

There are seven UK-listed infrastructure funds, many of which are increasing the proportion of their assets invested in foreign portfolios already, according to Iain Scouller, an analyst at Oriel Securities.

This is partly because it has become harder to raise financing for PFI projects in Britain in the past few years. But it also “reflects a desire to diversify away from potential political and structural changes that may impact future returns from newer UK PFI projects”, he adds.

The effects of the PFI reforms on infrastructure funds would not become apparent for several years, as they tend to invest in projects only after the lengthy construction process is complete. But it would have a knock-on effect if contractors failed to win commissions as there would be fewer projects in the pipeline.

In the worst case scenario, a restriction on equity returns might effectively prevent construction-stage investors from selling on their interest in the projects at a profit, says Mark Hellowell, a lecturer at Edinburgh University who advised the Treasury committee in its PFI inquiry.

Werner von Guionneau, chief executive of InfraRed Capital Partners, which has invested in several PFI projects at the construction phase, says that he welcomes reform of the PFI system. However, he argues that the government should focus on shortening the procurement process and improving allocation of risks, rather than restricting returns on equity. “The government has to ensure that the risk-reward profile remains attractive,” he says.

The Treasury said it was considering a range of options for public/private sector partnerships but no decisions had yet been made.

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