Another PFI (private finance initiative) project in the UK (in Australia these are called Public Private Partnerships) has run into strife. It’s a tramway in the London suburb of Croydon. The problem has arisen with a Special Purpose Vehicle (SPV) which is not, as you might think a new kind of tram. The SPV is a financial entity set up to make it appear that the risks of the project have been transferred from the public to the private sector, which is crucial in justifying the high rates of return paid to private investors in these deals. Unfortunately, it appears that this particular SPV doesn’t have any assets with which to meet the costs of something going wrong so, in all probability, the public will have to pick up the tab. The story is reported here. What’s really striking though is the comment of one of the financiers

Mr Rawlinson did not see the Croydon difficulties as a problem for SPVs generally. “Most are perfectly safe because they refer to schools or hospitals where the source of income is guaranteed and if they run into trouble they are supported by local or central government.”

In other words, the supposed risk transfer in these schemes is a fraud, which is what the critics have been saying all along.