Originally Posted by
luchboxlegend
MOD is just the same-hasn't got the money but can make regular payments to someone who has!
And therein lies the catch.
No PFI Contractor has any money sloshing around in the event they win a lucrative contract. They have to raise the money in the commercial market.
Now the MOD could, in theory, enter the commercial market too and borrow the money by selling stocks in MOD.com plc. They would then have to repay the stocks in 25 years time, a dividend to bond holders.
The difference is that the PFI Contractor raises the money in the commercial market, pays interest on this and passes the interest plus profit on to the MOD. They also provide the through life service on the same cost plus basis.
Either way MOD pays for the annual running costs of the contract but in the later they pay a profit premium on the costs.
If they raise MOD Bonds they would discount the future and put off the evil moment of repaying the loan for 25 years.