Making a case for PFI credits

Defra has recently adopted a new system for awarding PFI credits to local authorities. LAWR looks at what's involved

To date Defra has invited each local authority to submit an outline business case (OBC) to its waste implementation programme (WIP) at a time of the authority's choosing. This system has worked satisfactorily until now, but the increased number of applications expected over the next two to three years demands a more structured approach to ensure all applications are dealt with promptly and on a consistent basis.

Following the practice adopted by other government departments managing a programme of PFI schemes, Defra has decided to adopt a system of PFI credit award rounds. The new system will require authorities seeking PFI credits to submit initial expressions of interest (EoIs) and subsequently OBCs in accordance with timetables established by the waste infrastructure delivery programme (WIDP) within WIP.

Choose your round
There will be an award round starting every six months and authorities will be free to choose which award round they wish to apply to join. Under the new arrangements there will a two step process for applying for PFI credits. Local authorities will initially be required to submit an EoI. These EoI submissions will be evaluated by WIDP to assess the degree to which projects are:
  • structured in a manner consistent with Defra's PFI credit criteria
  • expected to contribute to the overall programme
  • sufficiently well prepared to be likely to finalise an OBC in accordance with the timetable for the award round.
To facilitate the evaluation process, EoIs will be required to follow a standard format. Following the approval of the EoI, authorities will be invited to submit an OBC. The only significant change to the OBC requirement relative to recent practice will be the introduction of a requirement for the completion of a planning health checklist.

Further guidance on the contents and structure of the OBC is set to be issued soon.

All applications will be expected to be consistent with the PFI credit criteria. Hence compliance with the published PFI criteria will establish eligibility for making an application, but will not guarantee that the project will be funded within the award round for which it applied.

It is certain that Defra will need to award a limited availability of PFI credits between projects. The rules for allocation are subject to review but will only be finalised when the Comprehensive Spending Review 2007 (CSR07) process is concluded. As indicated above, there will be award rounds starting every six months - the next round requires EoIs to be submitted by end of September 2007, and the deadline for the round after that is end of March 2008.

Scope for flexibility
Further award rounds may be arranged for authorities that do not fall into the first four rounds to the extent that further PFI funding is available. The current expectation is that local authorities will receive notification of the result of WIDP's evaluation of the EoI within two months of the submission date. For those successful in the process there will then be a period of five more months for completion of an OBC.

For example for round two - which required EoIs by the end of March 2007 - Defra will notify authorities of the outcome of its evaluation by the end of this month. Full OBCs will then have to be submitted to Defra by the end of October 2007. The timing of final approval may be contingent on the timing of CSR07, but it is hoped that full approval, including project review group (PRG) approval and confirmation of the PFI credits available, should be achievable by February 2008.

Individual authorities or groups of authorities undertaking joint procurement which have already received PRG approval for an OBC will not be affected by these changes.

Five early starters
There are five authorities or groupings of authorities that have already received conditional agreement from Defra that PFI credits will be available to them, subject to submission of an OBC that is approved by the PRG. The projects concerned are Merseyside Waste Disposal Authority, North Yorkshire and City of York, Essex County Council and Southend-on-Sea, Leeds City Council and Barnsley, Doncaster and Rotherham.

The quantum of PFI credits available to Defra to distribute to local authorities is contingent on the outcome of the CSR07. At this stage in the review, Defra says that the baseline position is £280M per annum and it has submitted an application for a substantial increase in the level of PFI credits to support WIDP.

Projects joining round two will be advised as to the level of PFI credits to assume by the end of May to allow the authorities sufficient time to secure member sign off on affordability issues.

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