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March 2007
New structure for UK private finance initiative waste credits 

The Department for Environment, Food and Rural Affairs (DEFRA) has implemented a streamlined process to apply for waste Private Finance Initiative (PFI) credits.

The introduction of Award Rounds, similar to those used by other government departments, means discrete application windows will replace the previous 'first come, first served' system.

PFI has a key role in helping local authorities to finance the estimated £11 billion of infrastructure required for the UK to meet its targets for reducing dependence on landfills.

The previous waste PFI system allowed local authorities to apply for credits at any time of the year. This made assessment of the relative contribution of each case to the overall PFI program more difficult. It also hindered the development of a program level pipeline management strategy.

The new arrangement addresses these issues and encourages a partnership approach which should offer increased value for money and delivery benefits. Prioritization will focus on a number of criteria including scale, deliverability, readiness and environmental objectives.

The key changes are:

  • The introduction of a new process of Award Rounds for Local Authorities to use when submitting an Outline Business Case (OBC) for PFI credits.
  • The requirement for local authorities to complete a new planning health checklist when submitting their OBC.
  • Eligibility will be based in part on compliance with published PFI criteria, and in part on additional criteria which will enable a managed pipeline of investments to be procured, supporting the acceleration of Infrastructure delivery whilst offering value for money.

The strategy will establish a process for identifying learning points from early projects and applying them to subsequent waves. It will allow DEFRA to match the flow of procurements to the capacity of the market as it expands. It is expected that deal-flow will progressively ramp up to a peak in 2010/2011 before declining. It will give confidence to the supply side of the market that there will be sufficient projects coming forward in an orderly process to justify investment in bidding and supply capacity.

It is expected that the strategy will also encourage new entrants to the waste market and alleviate potential constraints on bid-side capacity which will improve the competitiveness of procurement processes and build momentum for the program.

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