The Infrastructure (Financial Assistance) Act 2012 (the “Act”) received Royal Assent and came into force on 31 October 2012. The principal aim of the Act is to stimulate investment in infrastructure and social housing by providing Government guarantees that will give confidence to private sector investors to invest in infrastructure projects.
The Act allows the Government to provide financial assistance of up to £50 billion in the form of loans, guaranties or indemnities: £10 billion is allocated to the provision of housing with the remaining £40 billion for infrastructure projects.
Infrastructure is defined widely under section 1(2) of the Act and includes, inter alia, railway facilities, roads or other transport facilities, health or educational facilities, water and electricity services as well as housing. Some examples of the types of projects that could qualify for financial assistance under the Act are the proposed extension of the Northern Line to Battersea or Crossrail rolling stock and depot services procurement.
The offer of financial assistance will be awarded on a case by case basis and will be subject to due diligence and Parliamentary approval processes, and a commercial fee will be charged for any guarantee. The application process will be governed by the UK Guarantees Scheme 2012 and the National Infrastructure Plan 2011. Thus, eligible projects must meet 5 criteria:
- Nationally significant, as identified in the Government’s National Infrastructure Plan 2011 (the Government will also consider other exceptional projects of national or economic significance on a case-by-case basis, such as university infrastructure);
- Ready to start construction within 12 months from a guarantee being given and having obtained (or about to obtain) necessary planning and other requires consents;
- Financially credible, with equity finance committed and projects sponsors willing to accept appropriate restructuring of the project to limit any risk to the taxpayer;
- Dependent on a guarantee to proceed and not otherwise financeable within a reasonable timeframe; and
- Good value to the taxpayer, assessed by HM Treasury to have acceptable credit quality, not present unacceptable fiscal or economic risks and to make a positive impact on economic growth.
All project applications will proceed in three stages:
- Stage 1: Project screening against key criteria
- Stage 2: Shortlisted selected projects will undergo a detailed project assessment and full due diligence through a robust project assessment framework and approval process
- Stage 3: Ongoing due diligence and project monitoring by experienced infrastructure commercial specialists, working closely with project sponsors