International banks and other investors considering public private partnership (PPP) investments in Scotland are already seeking legal opinions as to what would happen if Scotland broke away from the UK, says City law firm RPC.
RPC says that a number of its international financial institution clients are concerned about investing in projects in Scotland via a PPP because the projects could potentially lose the implied guarantee of the UK Government if Scotland votes to withdraw from the UK.
Many PPP projects in Scotland are backed by local authorities or other public sector bodies that could fall under the responsibility of Scotland rather than the rest of the UK if Scotland leaves the union.
Sukh Ahark, RPC finance partner, says: “It is very early days but investors are already worried about having the implied guarantee of the UK Government replaced with the much smaller and potentially weaker Scottish balance sheets.
“This is one of the issues that needs to be addressed ahead of any referendum. Any uncertainty could delay investments in infrastructure in Scotland and increase the cost of funding for projects North of the border.”
PPP projects are major public infrastructure ventures which rely on the private sector to design, build, finance, and operate the projects with a public sector agency paying for use of the school or hospital built.
Ahark says: “Financial institutions need a high degree of certainty to invest large amounts of capital into these projects and the withdrawal of UK Government backing – which is likely to happen if Scotland becomes independent – will have an impact on whether banks and other financial institutions will choose to invest in these projects in the future.
“There is no shortage of infrastructure projects for institutions to fund – Scotland and the rest of the UK normally attract investors as it’s a low risk venue.”
RPC says there are 90 PPPs currently in operation in Scotland worth GBP6.1bn.