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PRIVATISED PFI BODY MAY FACE CONFLICT OF INTEREST

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Senior Whitehall officials hope that a third of all private finance initiative deals will go through Partnerships U...
Senior Whitehall officials hope that a third of all private finance initiative deals will go through Partnerships UK, the body that will emerge from the privatisation of the Treasury's PFI taskforce, reports The Fianancial Times (p4).

The potential scale of PUK's operations is becoming clearer as ministers look for a chairman of the new body, which is due to start operations next March.

But officials are having to answer charges that PUK could face a conflict of interest in acting as a key adviser and development financier to public sector bodies, while also seeking to make a return itself from an equity stake in them.

Options being considered to counter this claim include a suggestion that the public authority buying the deal will not decide on how it will pay PUK for its advice, and on any development money it will put in, until after the deal has been struck.

It could then decide whether to pay PUK direct, give it an equity stake, or roll the costs up into the project's overall financing.

Another option is that the public sector purchaser could take a direct financial interest in the project on the same terms as PUK, which will be private sector-led but with a large minority public sector stake.

Alternatively, PUK could seek a fixed return on the project, defined at the outset and available to all bidders as part of the project's financial structure.

Steve Robson, the second permanent secretary as the Treasury and chairman of the steering group putting PUK together, said there were 'a number of techniques' that could be used.

The aim of PUK, he said, 'is make good deficits, the most fundamental of which is the deficit of skills in the public sector to put PFI deals together and execute them sensibly'.

To work, however, PUK had to be 'of a size that will make a difference. It would be nice to see a third of PFI deals going through the PUK machine', he added.

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