From Concessions to Project Finance and the Private Finance Initiative

Abstract

Since the mid twentieth century in the
U.S. and, more recently, since the
1970s in Europe, Asia, and other
developing countries, national governments
have increasingly used private capital
to implement infrastructure projects and to
provide services previously in the scope of
the public sector. They do it using several
types of concessions. Following this trend, in
1992, the U.K. government announced the
Private Finance Initiative (PFI), a guidance
and a legal framework for concessions in the
U.K. Its main objective was to encourage private
capital investment into public projects.
To understand why the U.K. government
introduced PFI, the concessions’ historic
and economic background is presented.
Although a national policy (Kerr [1998]), the
underlying rationale of PFI must be analyzed
and integrated within the international context
as each state is a participant in the global
economy.