Cost of PFI repayments to taxpayer will ultimately top £300bn

Analysis by the Guardian, based on publicly available figures from the Treasury, indicates that repayments on new schools, hospitals and other public projects with a combined capital value of £54.7bn will reach £301bn by the time they have been paid off. The figures indicate that there are 717 PFI contracts underway across the UK, with a further 39 deals in the pipeline.

The Treasury's Infrastructure UK unit is currently addressing alternatives to the model following a review, announced late last year, and is due to report shortly. Critics have suggested that higher borrowing costs due to the recent economic downturn have resulted in the long-term costs of PFI becoming much higher than for other, more conventional forms of borrowing, while the House of Commons Public Accounts Committee (PAC) and the National Audit Office (NAO) have both criticised equity investors for charging more than they should to offset project risk.

However infrastructure expert Jon Hart of Pinsent Masons, the law firm behind Out-Law.com, said that the headline figures disguised the bigger picture.

"The really difficult question to answer is whether, in the absence of PFI we would have seen anywhere near the same level of investment in UK infrastructure over the last fifteen years – and what might the country look like in the absence of that investment," he said. "As the Guardian article itself tacitly accepts, the big numbers being quoted include debt repayments, which inevitably reflect the swings in borrowing rates during the period in which the projects have been procured; a level of equity return to sponsors, like any other form of direct commercial investment; and operational and running costs, which procuring authorities would have to undertake in any event, PFI or not."

PFI was introduced in the 1990s as a way of using private funding to pay for major infrastructure projects such as roads, prisons and schools. In a PFI agreement, the private sector obtains finance to design, build and operate a facility for the benefit of the public. In return the public sector will grant its private sector partner a long-term contract to run the facility – typically, 25-30 years – and will pay a monthly fee over the life of the project to repay the loan.

According to the figures the Department of Health made the biggest use of PFI, with 118 current NHS projects with a capital value of £11.6bn. The Guardian said that repayments on these projects alone would amount to £79.1bn by the end of the projects.

Last week it was announced that South London Healthcare, which runs three hospitals, could be the first to face restructuring under a statutory "special administration" regime due to its level of debt, which press reports indicated was the result of inherited PFI agreements. A Government report last year identified 22 healthcare trusts as facing difficulties because payments under PFI schemes were amounting to up to a fifth of their budgets.

Hart said that although some of the "oft-repeated" criticisms of PFI bore "some justification", some of those criticisms had already been addressed by the Treasury and procuring authorities. "Further evolution" would likely follow as a result of the Government's review, which he said was currently expected for after the summer recess.

"There has been useful ongoing debate as to whether it is truly sensible for the private sector to price for certain risks which may not arise, or else which it may make more sense for a procuring authority to bear - for example, project insurances and legislative changes," he said. Additional changes to the standardised working and guidance for public sector PFI contracts have, since April, given procuring authorities further rights to share in any financial gains when projects are refinanced.

The Government has previously stated its commitment to encouraging pension and insurance funds to invest in infrastructure, particularly at the less risky construction phase. A new Pension Infrastructure Platform, to be owned and run by UK pension funds, was announced as part of this year's Budget, while last year's National Infrastructure Plan (NIP) set out alternative private sector funding approaches. However, Hart stressed that "economically credible, concrete models" would be needed before these plans could proceed with any degree of certainty.

"It is highly likely that the future landscape for project infrastructure investment in the UK may be more complex than that which presently exists," he said. "However, in the absence of concrete models, as to how – on an economically credible basis – it is going to be possible to unlock different funding sources from pension and insurance industries and international sovereign wealth funds, if there is going to be any future private investment, it will need to follow some of the central features of the old PFI model."

In the meantime, he added, the uncertainty surrounding the model had resulted in a "vacuum" in the infrastructure pipeline while "other international infrastructure markets continue to make use of models derived from the UK's own creation". "All of this at a time when funders are trying to limit their lending exposure and are less likely to want to invest, long term, in certain infrastructure schemes," he added.

A Treasury spokesperson said that the published figures represented the first "clear assessment" of the UK's total PFI liabilities.

"The Government has already taken action to drive savings in PFI and as part of its review of PFI aims to deliver a new, cheaper model, which will ensure a fair deal for the taxpayer now and in the longer term," she said.