Industry fears American funders will make "subliminal" link between PFI projects and failed energy giant.
A top construction accountant this week claimed that the collapse of Enron, the seventh largest company in the USA, had made American bankers nervous about investing in UK PFI deals.

"There's a danger that PFIs will be tarred with the same brush as Enron," said Richard Smee, head of Ernst & Young's construction division.

"There's some fairly complex accounting that goes on in PFI projects. It's quite common and perfectly legitimate, but some US funders – banks and pension funds – have been concerned. The Americans have become frightened post-Enron."

His comments come after recent claims from the City that the collapse of Railtrack was also threatening PFI deals (see below).

Enron, a Texas-based energy provider, collapsed late last year, owing billions of pounds, after hiding losses incurred on joint ventures.

Smee said although PFI schemes were financially sound, they bore a resemblance to Enron's joint ventures because the full risks could be kept off the balance sheet.

He said: "In certain circumstances, it's possible to show only the net impact of a project on the balance sheet, not the gross assets and gross liabilities." This could make the sums involved appear much smaller.

Smee said potential backers were wary of the debt problems involved in PFI schemes because the only collateral for loans was the asset itself, not the parent company. Smee said: "UK projects might expect to get some questions and nervousness; they need to be prepared for that."

Smee referred to a recent PFI scheme on which the backers "had to spend a lot of time explaining the financing to US banks" that were lending money to the project and the parent company involved. He would not name the project.

Matthew Webber of Innisfree, an institutional investor that invests in PFI schemes, said: "Many of the banks that lend money to PFI projects had quite a large exposure to Enron.

"If you're a banker in the City, you probably just dropped £25m on Enron, so you're probably feeling a bit sick.

"That means you're more nervous and cautious than you were six months ago."

He added: "People don't make any rational link between PFI and Enron. There's a subliminal connection between Enron and PFI, so there is a small effect on the market."