[Metrobeans]

B483 - Project Bonds Bill, TSR Liberal Democrat

Project Bonds Act 2012

An Act to stimulate investment in needed infrastructure using private financing.

BE IT ENACTED by The Queen's most Excellent Majesty, by and with the advice and consent of the Commons in this present Parliament assembled, in accordance with the provisions of the Parliament Acts 1911 and 1949, and by the authority of the same, as follows:-

1. Creation of Project Bonds
1.1 From the 1st April 2013 the UK government shall offer Project Bonds (PBs);
1.2 The procedure for PBs shall be as set out in Section 2;

2. Project Bonds procedure
2.1 A PB may be announced for any project that meets the criteria in Section 4;
2.2 A month after the PB has been announced, there will be a PB auction;
2.3 Any company or individual which meets the criteria in Section 3 may bid in the auction;
2.4 The people and/or companies which offer the lowest interest rates shall win the auction;
2.5 If there is not enough money raised in the auction or if the interest rates offered are deemed too high to make a profit on the project, the government may cancel the PB;
2.6 Once the money has been raised, then the project shall be completed;
2.7 As soon as the project begins to bring in revenue, the holders of PBs shall receive their interest payments from the 'PBF' (see Section 5), over 25 years;
2.8 Holders of PBs may sell their PBs to other companies or individuals which meet the criteria in Section 3;

3. Criteria of eligibility
3.1 Any individual over the age of 18 may bid for a PB, providing he/she bids a minimum sum of 50 pounds;
3.2 Any legally registered company may bid for a PB, irrespective of the country they are based in, provided that the company bids a minimum of 500 pounds;

4. What Project Bonds may be issued on
4.1 A PB may be issued on any project which requires an investment of more than one million pounds in constructing infrastructure in any part of the UK, providing that the project is expected to bring in enough profits over 25 years to cover the cost of the interest payments;

5. Creation of Project Bond Fund
5.1 All money made in profit from any project funded by PBs shall be put into a collective 'Project Bond Fund' (PBF);
5.2 All interest payments shall be paid directly from the PBF;
5.3 If the PBF runs out of money for whatever reason, then the central government shall transfer funding from its budget into the PBF to cover the shortfall;

6. Counter-cyclic strategy
6.1 During a 'recession' the money in the PBF can be used to supplement private sector funding for PBs, if such a need arises;
6.2 For the purposes of this Act, a 'recession' is defined as negative economic growth of GDP for at least three successive quarters;
6.3 There is no interest payment on PBs that are bought by funds from the PBF;

7. TSR rule
7.1 For the purposes of the MHoC, any Bill may request the issuance of PBs for any project(s) which meets the criteria in Section 4;

8. Default
8.1 If after the first ten years of the project the net revenue bought in so far from it covers less than 75% of the interest payments made so far, the government may default on the project;
8.2 If the government defaults, then a private company shall be set up to manage the project, independent of the government;
8.3 All the owners of PBs on that project shall receive shares in this new company, proportional to the monetary value of PBs they held;
8.4. No more interest payments shall be made on a specific project once the government has defaulted on it;

9. Commencement, short title and extent
9.1 This Act shall come into force on the 1st April 2013;
9.2 This Act can be cited as the Project Bonds Act;
9.3 This Act extends to England, Wales, Scotland and Northern Ireland;

Notes

Project Bonds- a brief overview

Spoiler:

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The general idea behind project bonds is that they can stimulate investment into infrastructure through the government, but using private sector funding. Project bonds can attract more private sector funding for infrastructure than if the private sector invested the money directly, as there is less risk involved for the private sector- they are guaranteed a return, and in a time of economic uncertainty, this matters a lot. There are currently proposals to implement some EU wide project bonds, which will apply to all European countries in theory; more information about them can be found here. This Bill is largely based on these proposals, though of course this Bill would only extend to the UK and also has some differences (such as section 6). This also covers a lot of the arguments for project bonds.

Why Section 6?

Spoiler:

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The idea behind section 6 is for counter-cyclical spending on infrastructure. The basic theory is that during the 'boom' years the PBF shall make a substantial profit from the various infrastructure projects it runs. When there is a recession and private sector funding for projects falls due to weakening demand, the profits from good years can be invested into infrastructure, ensuring that infrastructure investment remains consistent and is never too low.

PFI

Spoiler:

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Although we do not have project bonds in the UK, we currently have Private Finance Initiatives (a form of PPP). However, problems have been raised recently about these, including huge costs and debts (the hope is that PBs shall reduce costs by having fixed interest rates and by paying the money from a separate fund, instead of directly from the government budget). See this for example. The article concludes by saying "This country has a huge need for new infrastructure – but to meet it, we need a new approach to using private sector finance"- what you have before you is an attempt to achieve just that.

[tehFrance]

Copy 'Deutsche Bahn AG' and their financing model much?

You have explained to me what a bond is (something I already knew) very well however you have not explained what kind of infrastructure the bonds shall be used for... if it is trains, I'll be incredibly disappointed...

[Birchington]

Aye.

[chrisawhitmore]

Could you clarify what sort of projects this initiative would fund, as lots of government projects don't bring in profits at all.

[Morgsie]

I favour this going a lot a further with the e3stablishment of an Infrastructure/Investment Bank funded from various sources: Govt, EU, Private etc

[barnetlad]

Would this help those businesses who cannot get bank loans?

[Rakas21]

Mr Speaker, i commend this bill as it was an idea which i was intending to put forward at some point.

Mr Speaker, i will deliberate over the minor details at a later date.

[jesusandtequila]

As long as we don't steal from general taxation to pay these back - and they be allowed to default on unprofitable projects then I'd be okay. So that'd be a no with the current 5(3).

[Observatory]

I'm a little unclear as to the purpose. If I read it correctly, the point is to fund projects that are self-financing. At least, the purchases of the bonds are to expect they will be self-financing, or else they stand to lose money. But then why is the state involvement necessary at all?

[internetguru]

So who would be eligible I am Bill 18 years old fresh out of Dragons Den after having my edible hat idea rejected would I be able to get £1million investment?

[jesusandtequila]

(Original post by internetguru)
So who would be eligible I am Bill 18 years old fresh out of Dragons Den after having my edible hat idea rejected would I be able to get £1million investment?

I believe this is for government projects.

[internetguru]

(Original post by jesusandtequila)
I believe this is for government projects.

Oh I get it now this is a stupid idea. All projects which will obviously be profitable will get eaten up by private investors to make loads of money. Then we have the projects which will obviously not be profitable and the taxpayers having to fund them.

[jesusandtequila]

(Original post by internetguru)
Oh I get it now this is a stupid idea. All projects which will obviously be profitable will get eaten up by private investors to make loads of money. Then we have the projects which will obviously not be profitable and the taxpayers having to fund them.

Hence my opposition unless unprofitable projects are allowed to default, instead of taxing from the tax pot.

[Metrobeans]

This is in cessation.

[Metrobeans]

Division!!