Elsewhere and possibly even interestingly

The basic background of the Private Finance Initiative is that if some bugger has their own money at risk then we’ve got at least some bugger interested in making sure that the project happens to time, to spec and on or even under budget. All that about the debt not being on the national debt is little more than a convenience. The real point is that with any project – the larger the project the more this is so – we want someone with skin in the game. The function of those private companies and builders and all that is to provide this. Some outside capital, that capital being at risk. The first buffer against the inevitable screw ups. There’s someone going to lose money if those walls don’t go up. Roughly straight, too.

This is also the argument against anything being entirely debt funded. There’s no one there with their own cash at risk. And of course it’s the argument against anything entirely taxpayer – say, the Humber Bridge – funded. No one does end up meat shopping in the cat food aisle if the whole thing is a Mongolian Clusterhuddle. Experience, hard won and centuries long experience, tells us that this does not always work – Channel Tunnel, *cough* *cough* – but it is the only thing we’ve got that we know of which stops it not working every time.

2 comments on “Elsewhere and possibly even interestingly

  1. An aside, but some of the bleating about the funding structure for heathrow is stupid. It makes as much sense for people to obsess about the balance sheet debt of BAA and that “there isn’t any equity at stake”, as it does to look at google and say that with 200bn of assets the 800bn market cap is just wrong.

    Call up the shareholders and ask if you can have the shares for 0 and I don’t think they will sell to you – suggesting there is quite a bit of equity value. Ditto with no equity cushion isn’t it odd that BAA is rated A.

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