Risk Management and Governance for PFI Project ... - Title Page - MIT

in previous chapters. Fortunately, there are not many conspicuously failed cases, except for the
cases shown in this paper, in Japanese PFI projects. This chapter, however, pointed out that there
are many potential institutional problems of PFI, which have not come to light.
First, it pointed out that the process of project assessment using the indicator VFM is lacking in
objectivity. It also claimed a need for developing refined guidelines that can eliminate the
arbitrariness in the parameter settings and constructing an effective scheme of multi-faceted project
evaluation.
Furthermore, a decision-maker needs to determine that the benefits of the PFI outweigh the
disadvantages, by taking into consideration the “VFM driver”. The PFI method uses private
financing with a higher interest rate than the public bonds issued by the governments. In other
words, if the PFI method were used without careful consideration, the entire financial burden on the
public side would probably increase. Thus, it should be recognized that unless the improvements in
the VFM outweigh the increase of funding costs, there is no logic for using private funds.
Finally, this chapter claimed that an evaluation by a third-party is valid for increasing the
transparency of the project implementation, including its decision-making processes. It is also
essential to clarify the evaluating role and scope of each party and set the evaluation points for each
project stage, as has been advanced in the UK. It would also be an effective way to develop the
evaluation framework by providing detailed audit points.
75