UK - Government guarantees for large infrastructure projects could result in a "radically new" financing approach for such ventures, KPMG has said.

Speaking after the UK Treasury announced a £40bn (€51bn) guarantee scheme for projects within its National Infrastructure Plan that were deemed of national significance, the consultancy predicted that not only would it aid the proposed Pensions Investment Platform (PIP), being developed by the Pension Protection Fund (PPF), but it could also boost investments by the country's Green Investment Bank.

Richard Threlfall, UK head of infrastructure, argued that some commentators had been too quick to say UK Guarantees would not be significant and that they should "step back and see what it might unlock".

Discussing the proposed January launch of the PIP, following a memorandum of understanding between the Treasury, National Association of Pension Funds and PPF last autumn, he said: "Pension funds don't like greenfield construction risks, but UK Guarantees provides a basis to take that problem away.

"Put UK Guarantees and the Pension Infrastructure Platform together, and you have the basis for a radically new financing model."

KPMG said it understood the government would not only assume construction or revenue risk, but all obligations related to the project's debt.

"This has the clear potential to open the door to pension and bond market finance for infrastructure projects," the consultancy said, adding that the new arrangement "dovetails" nicely into the launch of the PIP.

It added that, with the guarantee assuming all construction risk, projects would only require construction risk-bearing equity from third parties such as infrastructure funds.

"The PIP would then essentially be putting debt rather than equity into the project during construction, and would be a passive investor until the guarantee fell away after completion, at which point its 'debt' could convert to 'equity' at par, and it could take control of the project asset," KPMG said.

The consultancy also predicted that the guarantees could boost investment by the new Green Investment Bank, currently unable to raise its own assets through bond issuance until UK debt falls below an agreed level.

It said that while there may be questions as to how the bank and the Treasury scheme would work together, it would likely increase the bank's ability to make "sizeable and meaningful" investments.

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