Full Form of PFI

Full Form of PFI – Private Finance Initiative

The full form of PFI stands for the Private Finance Initiative. Private Finance Initiative is a way by which public sector projects are financed through investments by private sector investors. For this reason, PFI is also known as a public-private partnership because of the relationship between the two sectors. It eliminates the need for immediate investments for the projects by the government for the construction, operation, and maintenance of the public projects and thereby reduces its burden as well as the burden on the future taxpayers.

Features

The presence of the following features can identify the existence.

  1. It is a contractual arrangement between the private sector authority and a consortium of private sector investors.
  2. The essential feature is that it uses private finance (i.e., private sector debt as well as underwritten equity) to fund public projects and services.
  3. Private sector consortium undertakes the construction, operation, and maintenance of the public projects as well as facilities.
  4. In return for the services provided, the consortium is remunerated for the quantum of services provided and based on their compliance with the performance standards.
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Scope

What are the projects that can be undertaken under a Private Finance Initiative arrangement?

  1. Infrastructure projects for the general public
  2. Public facilities

How Does Private Finance Initiative Works?

Working-of-PFI.jpg

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Examples

It includes infrastructure projects such as highways, tolls, roadways, bridges, railroads, airports, etc. Further, PFI arrangements are not just limited to infrastructure projects but can also extend to the provision of public facilities such as the construction of water and wastewater management, schools, colleges, hospitals as well as sports facilities.

Thus, whenever the public sector contracts with the private sector to undertake the development of a public project, it may be called PFI.

Benefits

The model provides the following benefits.

  • Before the PFI model was existent, the governments had to make investments into the public projects either through their own funds or by raising money from borrowings and paying interest on such borrowings. Also, they were required to appoint the contractors to get the work done. But it eliminates the need for investments by the government.
  • It has been observed that PFI models provide on-time completion of projects.
  • The risks that are attached to the construction and maintenance of the projects are vested with the private sector instead of the public sector.
  • The model is advantageous for both the private and the public sectors in the long term since they get to share resources and expertise and establish a good relationship between the two sectors.

Limitations

There are some limitations which are as follows.

Conclusion

Instead of following the earlier practice of making direct investments and carrying out construction and operation of the public projects, governments often follow PFI arrangements for the same. Thereby, it establishes a relationship between the private and public sectors and leads to on-time completion of the public projects.

Recommended Articles

This has been a guide to the full form of PFI (Private Finance Initiative). Here we discuss features, scope, examples, and how does PFI works along with benefits and limitations. You may refer to the following articles to learn more about finance –