Iran, The Potential Shape of PPPs and…(another) New PM!

Iran impact

The Iran conflict has been a talking point around the world since it commenced on 28th February, but how has it impacted the infrastructure space?

Mount Street’s current analysis indicates that there is no evidence of a material credit deterioration, with impacts to date limited, asset-specific, and operational rather than causing fundamental issues to the underlying structure of deals. Additionally, borrowers have not indicated liquidity pressure or covenant risk.

Sector specifics are summarised below.

• Airports: Some passenger softness on Middle Eastern routes and potential fuel-related risks; impacts manageable but sensitive to duration of the conflict. Although, recent evidence suggests limited impact / cancellations for the major airline operators expected due to alternative fuel sources i.e., US and Nigeria. However, higher prices will be symptomatic of the pressure.
• Road / road concessions: Clear demand impact from higher fuel prices (lower traffic/volumes), albeit partly offset by non-fuel revenues.
• Construction assets: Evidence of disruption to building materials causing force majeure events in some cases, but with alternatives/ mitigants subsequently sourced.
• Logistics: Too early to determine a clear direction; some potential short-term uplift from supply-chain re-routing or alternative transport needs where customers adjust logistics flows in response to disruption.
• Renewables/contracted assets: Largely insulated; in some cases, benefitting from higher power prices.
• Ports: Western European ports are generally well-protected and largely unaffected by the crisis due to a very small percentage calls passing through Middle Eastern routes.

Whilst the path to a peaceful agreement to the conflict has been long trailed and with no one being able to rule out further hostilities, the current outcome is further evidence that Infrastructure remains a resilient asset class, with risks concentrated in a small number of assets (aviation, fuel-sensitive transport, and construction). Therefore, at this stage we would recommend ongoing monitoring rather than intervention is appropriate.

Grid Challenges / Subsidy changes

In terms of 2026 trends, whilst there is plenty of liquidity currently in market and no shortage of investors willing to deploy, deal flow in the renewables sector is being hampered by grid reform, network capacity issues and additional / rising levy charges which in some cases could (frustratingly) result in some projects not reaching financial close.

Additionally, several existing renewables subsidies and levies in the UK are currently under review such as the Energy Generation Levy (increasing) or being discontinued such as Carbon Price Support, all which could have varying impacts upon power prices.

Neighbourhood Health PPP*

In the UK the government has recently been consulting on Neighbourhood health PPP projects which aims to deliver health and care by organising services close to home and on the high street, such as GPs and community services and urgent care, diagnostics and outpatients.

The government believes that people’s health and care outcomes, reduce health inequalities and help them stay well at home.

It will also help to relieve the pressures felt on the main hub hospitals.

Neighbourhood health centres (NHCs) will be seen as the place to go for most health needs in every community.

The DHSC and NHS England are delivering 250 Neighbourhood Health Centres (NHCs) by 2035 (with 120 by 2030). Funded through a hybrid of public capital and innovative Public-Private Partnerships (PPPs), these centres will integrate GPs, nurses, mental health, and social care under one roof to focus on preventative care and tackle health inequalities.

Funding & Ownership: Around 20% of new schemes will rely on direct public capital, while the remaining 80% will be financed through new, rigorously scoped PPP models that build on lessons from past initiatives like NHS LIFT.

Site Selections: Early upgrade and new-build schemes are underway, with locations like Birmingham, Barrow-in-Furness, Truro, and Southall identified as key initial areas.

Project Value & Timeline: The program kicked off market engagement as a 30-year infrastructure drive valued at roughly £1.2 billion (including VAT), running from June 2027 through June 2057.

It is important to note that the private sector will not deliver healthcare. Private partners are strictly contracted to handle the physical side of the facilities. The model is built on lessons learned from the older NHS LIFT (Local Improvement Finance Trust) program and covers: Architectural design and construction Project financing Long-term building operations and estate maintenance.

*Source: Gov.UK website

What Future PPP structures could look like

With the Neighbourhood health PPP in mind there has recently been a lot of discussion within industry circles around how (theoretical) future PPP structures could be optimised by reflecting upon the successes and learnings from the past. Some of the key points are as follows:

• More Equitable Ownership Structures: Giving the offtaker (governmental or quasi- governmental authority) a minority stake in future project ownership structures, as seen on LIFT deals, which could potentially lead to better cooperation, less conflict and more equitable outcomes.
• Structural Flexibility: Future projects to have greater structural flexibility to meet changing needs over the often long tenor of a concession/ debt period.
• Variations: Often a bug bear for authorities in terms of perceived time taken to approve by lenders and the costs associated with it. Perhaps adopting a more holistic approach, with greater visibility / lead in times on anticipated variation pipeline and finding a happy medium that recognises both the authorities desire to expediate variations with the lenders wish for any associate risks to be mitigated.

New PM, New Change of Direction?

With Andy Burnham the new prime minister, the UK will have had its seventh PM in the past 10 years. Clearly, this amount of change brings with it a great deal of uncertainty and with long-term planning the ultimate victim.

On assuming office in 2024 there had been an expectation that the Labour administration would kick start infrastructure projects via the use of the private sector. However, this has still to materialise in any meaningful way.

Early indications are that PM Burnham plans to radically decentralise and devolve power and funding to the regions of the UK. How this plays out is yet to be seen as is his policy on the funding of future infrastructure projects and the use of public or private funding. However, a potential positive early indicator for the infrastructure sector is that he has aligned himself with former chairman of Goldman Sachs Asset Management and economist, (Lord) Jim O’Neill who is favourable to the use of private capital given his belief that limited state resources make private investment necessary. To succeed, he believes governments must create clear, transparent policies and stable regulatory environments to attract investors.