HMT's policy document setting out how the new National Infrastructure Bank (NIB) will operate offers a positive and confident vision for the future financing of UK infrastructure projects.
Many in the sector will be pleased to see that, at its core, the NIB will operate on a principle that genuine private and public sector partnership and risk share in the financing of UK infrastructure is beneficial to both sectors.
In particular, this will be of real benefit for the catalogue of Green projects currently being developed where innovative technology, new revenue models or untested commercial structures might otherwise struggle to attract private finance. The ability of NIB to offer solutions that provides for a mix of public and private funding where, for example, NIB can provide first loss and mezzanine debt products could be a game changer.
For those that have yet to review the Policy a few key takeaways are:
* NIB will focus on two key policy objectives - tackling climate change and supporting regional economic growth. Projects competing for NIB funds will therefore likely need to stress the benefit of the project on both of these priorities.
* NIB will prioritise investment where there is an under-supply of private sector financing.
* Although independent in its decision making NIB will have support of HMT and ability to provide UK Guarantees (up to £10bn).
* NIB will have £22bn of financial capacity - £12bn for lending and investment (£4bn committed to local authorities) and £7bn for a credit facility.
* On private projects NIB will seek these to be revenue generating to protect investments. Local authority projects will not need to be revenue generating in themselves but the project will need to be sound and local authorities will need to demonstrate loan repayments will be secured.
* NIB will be able to offer a range of financing tools including senior debt, hybrid products, equity and Guarantees to both private and public sector.
* NIB will be able to provide an infrastructure advisory service providing additional expertise on infrastructure financing and structures to authorities.
The details in relation to the operation of the NIB will be phased. The first phase will establish the Bank in its interim form, the second phase will scale up its activity and finalise the operations and business strategy and in its final phase NIB will be established on a statutory footing. We will be following these developments closely to understand how the Policy will be implemented and the opportunities and challenges this will bring to the sector.
There will no doubt be lots to understand as things progress, including how funding applications will be assessed and the form of contractual arrangements and protections the NIB will need in place on the projects it is involved in. This is though an extremely bold and exciting piece of the jigsaw needed to allow the UK to meet its ambitious Net-Zero and infrastructure ambitions.
Policy Design of the UK Infrastructure Bank
https://www.gov.uk/government/publications/policy-design-of-the-uk-infrastructure-bank