Building a new infrastructure delivery team

Could the new Infrastructure and Projects Authority (IPA) strengthen the government’s position on the delivery of major economic projects? Charlotte Morgan, partner in the global energy and infrastructure group at Linklaters, considers how the new body could affect the project finance landscape in the UK.

Original news

Two current government bodies—Infrastructure UK (IUK) and the Major Projects Authority (MPA)—are to merge, creating the new Infrastructure and Projects Authority, the Cabinet Office and HM Treasury have announced. The new body will have responsibility for managing and delivering major economic projects and will come into formal existence on 1 January 2016.

How will the establishment of the new IPA affect the project finance landscape in the UK? What does it mean for PPP/PFI/PF2 going forward?

The merger of the combined IUK and MPA teams into the new IPA is intended to send a message that infrastructure is right at the heart of the government’s agenda.

The IUK team have a wealth of private sector investment experience and, importantly, finance expertise. They advise on most complex deals on the government’s to-do list. What makes it a dynamic team is its closeness to the Treasury’s spending decisions, so keeping a reporting line to the Chancellor will be vital for the new team.

The MPA team has traditionally been more focused on procurement and looking at governance, robust decision making and business case analysis—the economics of why a project may be undertaken. The MPA also oversees major projects during the delivery phase. Recently it brought in additional private sector expertise to help streamline project procurement and to focus on securing a reduction of the cost of services to the taxpayer. Under Francis Maud’s leadership it did manage to secure some short-term savings.

Announcing the merger of the two teams is aimed at giving the infrastructure project industry a boost. However, the key determinant for the success of the new combined team will be the speed with which the government can procure the big projects it needs to energise the economy. After the Chancellor’s Autumn Statement highlighted the need for new infrastructure the industry has been vocal about its disappointment at the delay to the airport decision. The new IPA needs some quick wins to establish itself as a delivery organisation.

The other thing the infrastructure investment community will be watching is how well the new body will work with the big spending departments and the new Infrastructure Commission. In the best case scenario the combined team should have the muscle and political support to get things done which will be welcomed by contractors and investors alike.

Will the new IPA take over all existing functions of Infrastructure UK and MPA? Is there any difference in the policies and agenda of the new body compared to the existing ones of IUK and MPA?

It is expected that the new IPA will take on the function of both bodies. It’s too early to say whether there will be any change in policy towards projects but nothing has been flagged as a change of direction.

There has been some resetting of policy in some key spending departments, such as energy and transport, and we expect the new IPA will respond to the policy direction flagged by those ministers. There has been, for example, a clear statement by Amber Rudd about the refocusing on nuclear energy projects, gas and offshore wind. The new IPA will be the enabler for these new policies and will help drive them forward—it won’t set policy itself.

How will the creation of this new government body affect existing and ongoing infrastructure projects in the UK?

The messages we’re hearing is that it will be business as usual. This is just a putting together of two existing teams. There is no reason to suppose there will be any impact on existing projects, but we will need to wait until the New Year. As I said, policy decisions will continue to be made by the departments themselves and not by the IPA. But we do hope that the new team will have secured a clear mandate to implement the policies taken by the spending departments.

Are there any specific issues that lenders, sponsors or project finance lawyers should be aware of?

None that spring to mind at this stage. The government is seeking send out a message reassuring the investment community that this is a positive step towards putting infrastructure projects at the heart of what the government is doing. Therefore, this move is designed to be encouraging to all those involved in the sector.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on LexisPSL Banking & Finance. Click here for a free trial.

Relevant Articles
Area of Interest