An Evaluation of the Projected Returns to Investors on 10 PFI Projects Commissioned by the National Health Service

Drawing on the financial models of 10 PFI projects commissioned by the UK National Health Service (NHS), this article identifies the returns that are projected to be earned by private investors and evaluates these through the application of corporate finance methods. The paper begins with a description of the PFI model in the NHS and identifies the risks to which private sector costs and revenues are subject. An analytical framework grounded in capital budgeting techniques is outlined, and used to measure and evaluate investor returns. Cost of capital benchmarks are used as comparators to (1) assess the Internal Rate of Return for each project, and (2) as discount rates to calculate Benefit-Cost Ratios. On both criteria, returns to investors on this group of PFI projects are shown to be much higher than would be sufficient to remunerate investors for the risk they bear.